Chat with AIExam 10: Independence and Moral Seduction
The IFAC Code of Conduct classifies a certain challenge to independence as the intimidation threat. What name does the AICPA's Independence Rule use to refer to this threat?
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Answered by Examlex AI CopilotThe AICPA's Independence Rule refers to the challenge to independence known as the "intimidation threat" in the IFAC Code of Conduct as the "undue influence threat." This term is used to describe a situation where a member may be coerced into acting or refraining from acting due to actual or perceived pressures, including attempts to exercise excessive influence over the member's judgment or decision-making process. This can compromise the member's objectivity and independence in their professional conduct.
A CPA was raised by his grandmother. Can his grandmother's stock ownership in one of the CPA's audit clients impair his independence?
(74) Answered by Examlex AI CopilotYes, a CPA's independence can be impaired if his grandmother owns stock in one of the CPA's audit clients. According to the American Institute of Certified Public Accountants (AICPA) Code of Professional Conduct and other regulatory bodies such as the Securities and Exchange Commission (SEC), independence is both a state of mind and an appearance issue. It requires that the auditor be independent in fact and appearance from the entity they are auditing.
Independence rules are designed to ensure that auditors are not influenced by any relationships or interests that could compromise their objectivity and impartiality. These rules typically extend to cover immediate family members and close relatives, which often include grandparents.
If the CPA's grandmother holds a material financial interest in the audit client, it could be perceived that the CPA might be biased in conducting the audit due to the familial relationship and the potential impact of the audit results on the grandmother's financial position. This could impair the CPA's ability to perform the audit with the necessary professional skepticism.
To maintain independence, the CPA would need to evaluate the significance of the grandmother's stock ownership in relation to the total assets or revenues of the audit client, as well as the significance of the investment to the grandmother's total wealth. If the stock ownership is material, the CPA would likely need to either:
1. Ask the grandmother to divest the stock,
2. Decline the audit engagement, or
3. If possible within the firm, reassign the audit engagement to another CPA who does not have a similar independence impairment.
It is important for the CPA to consult the relevant professional standards and possibly discuss the situation with the firm's ethics or compliance officer to determine the appropriate course of action to maintain independence in both fact and appearance.
In the business world, sellers often sell goods on credit. In the auditing world, due to the independence requirement, CPAs:
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VerifiedC
A CPA recently was presented with the opportunity to bid to become the auditor for a corporation. This CPA's husband owns stock in that company. Does this CPA satisfy the independence requirement to audit this company?
(79) A junior CPA at Horwatharama, CPAs currently is working as an audit team member on the audit of General Molecular. This CPA is about to search for a different position of employment.
a. If this individual is thinking about applying for employment at General Molecular, what are his professional duties and when do they commence?
b. You are a friend of this junior CPA and you know that he is about to apply for employment at General Molecular. You also know that he does not intend to inform Horwatharama, CPAs until "the last minute, if at all." What duties do you have under the AICPA's Code of Professional Conduct? What actions, if any, would you take?
c. Once a CPA firm learns that an audit team member is pursuing employment with an audit client, what duties, if any, does it have?
d. If a junior CPA decides to pursue work at an audit client during the course of an audit, what kinds of costs will his decision impose on his CPA firm? Should he reimburse the firm for those costs?
(71) A CPA firm has multiple locations throughout the Midwest of the United States. This firm has an audit client that is headquartered in Milwaukee, Wisconsin and the partner in charge of this audit is also located in the Milwaukee office of the firm. The audit client is a beverage manufacturer and the partner in charge of this audit is the Chairman of the firm's Food and Beverage Industry Audit Committee. To preserve the CPA firm's independence, which of the following individuals definitely must not own any direct interests in this beverage manufacturer?
(69) A "covered member" of a CPA firm owns 4% of the bonds outstanding in an audit client. In accordance with the Independence Rule, does this CPA firm have the independence to audit this client?
(60) Under ordinary circumstances, both the CFO and CEO of a particular company authorize and sign check disbursements exceeding $10,000. However, when the CEO of this audit client is unavailable for an extended period due to her travel schedule, the client's CPA co-signs checks that exceed $10,000 only after these checks first have been authorized and signed by the client's CFO. The CPA:
(86) For many years, a partner in a CPA firm worked on the audit of Grossnomics, Inc. This partner now has retired from the CPA firm and serves as a consultant to Grossnomic's Audit Committee. This partner's former CPA firm:
(89) What are the seven threats to independence identified in the AICPA's Code of Professional Conduct? Give examples of each.
(77) Cyndi's husband Larry works as a cashier at Starstrucks, a chain of coffee shops. Cyndi, a CPA, may:
(74) The term "safeguard," as it used in determining auditor independence, refers to:
(86) A CPA has multiple office locations. In evaluating whether a CPA firm satisfies the independence rules with regard to an audit client, the concept of a "covered member" includes:
(81) Status as a "covered member" is important in determining independence because CPAs who are classified as a "covered member" lack the independence to conduct an audit if:
(71) A CPA firm audits Zaxstation, Inc. To avoid impairing the CPA firm's independence, members of this CPA firm may never:
(98) A CPA's mother-in-law owns stock in one of the CPA's audit clients. The CPA just learned this fact. In all likelihood, the CPA's independence is:
(63) The undue influence threat is most likely to be present when:
(62) An auditor may not perform an audit unless threats to independence are:
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