Taxation Midterm
ACC 622 Advanced Auditing
Midterm Case 4.1
1. A close friendship between an auditor and the client can jeopardize the auditor’s appearance of independence. And I think when such close relationship begins influence the auditor’s thoughts when he or she makes very important decisions, the independence of an auditor has been compromised.
The Rule 101 – Independence says:
“A member in public practice shall be independent in the performance of professional services as required by standards promulgated by bodies designated by Council”
And the independence is impaired if a covered member has certain interest or relationships. For example, direct and material indirect financial interest in a client, a joint investment with a client, associated with the client as an officer, director or manager, has a close relative who holds a key position with the client or certain financial interests and so on.
2. Yes. This would impair the auditor’s independence. The rule 101 – Independence indicates that when a firm or one of its partners or professional employees is associated with the client as an officer, director, manager, employee, promoter, and underwriter, the independence will be impaired.
In this case, Bergman was quite familiar with the BDO’s auditing procedures since he was employed by BDO several years ago. And he supervised the 1989 and 1990 audits of HMI. And Mei-ya was also involved in the audit in 1989 and 1990. They both were employees of the audit firm at one time, so their independence should be considered impaired.
And the case says that although Mei-ya Tsai and her team member found a large amount in-transit inventory which is unbelievable, they still didn’t modify their audit procedures and finally issued an unqualified opinion. So there must be some independence problem within it.
3. The inventory rollback or rollforward is usually performed when the audit firm think that the inventory is a material item in the client’s financial
Midterm Case 4.1
1. A close friendship between an auditor and the client can jeopardize the auditor’s appearance of independence. And I think when such close relationship begins influence the auditor’s thoughts when he or she makes very important decisions, the independence of an auditor has been compromised.
The Rule 101 – Independence says:
“A member in public practice shall be independent in the performance of professional services as required by standards promulgated by bodies designated by Council”
And the independence is impaired if a covered member has certain interest or relationships. For example, direct and material indirect financial interest in a client, a joint investment with a client, associated with the client as an officer, director or manager, has a close relative who holds a key position with the client or certain financial interests and so on.
2. Yes. This would impair the auditor’s independence. The rule 101 – Independence indicates that when a firm or one of its partners or professional employees is associated with the client as an officer, director, manager, employee, promoter, and underwriter, the independence will be impaired.
In this case, Bergman was quite familiar with the BDO’s auditing procedures since he was employed by BDO several years ago. And he supervised the 1989 and 1990 audits of HMI. And Mei-ya was also involved in the audit in 1989 and 1990. They both were employees of the audit firm at one time, so their independence should be considered impaired.
And the case says that although Mei-ya Tsai and her team member found a large amount in-transit inventory which is unbelievable, they still didn’t modify their audit procedures and finally issued an unqualified opinion. So there must be some independence problem within it.
3. The inventory rollback or rollforward is usually performed when the audit firm think that the inventory is a material item in the client’s financial