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AUD - Auditing & Attestation (Forum Locked Forum Locked)
 CPAnet Forum : AUD - Auditing & Attestation
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lukez
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Posted: 20 Jul 2010 at 12:24 | IP Logged Quote lukez

Which of the following is least likely to impair a CPA firm's independence with respect to a nonpublic audit client in the Oklahoma City office of a national CPA firm? 
A. A partner in the Oklahoma City office owns an immaterial amount of stock in the client.
B. A partner in the Jersey City office owns 7% of the client's stock.
C. A partner in the Oklahoma City office, who does not work on the audit, previously served as controller for the audit client.
D. A partner in the Chicago office is also the vice president of finance for the audit client.

I've ruled out A and B due to the direct financial interest.   I know a partner in the office doing the audit is a covered member, however, would previously being a controller impair independence?  I would think even though in D the partner is from the Chicago office, being a VP of Finance is a position of influence with the client so I am leaning towards C.  

Anybody offer any insight?   
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Jeremy
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Posted: 20 Jul 2010 at 18:40 | IP Logged Quote Jeremy

I say D. C would only be the case if he was auditing the books for which he had influence over. For example, if he left the client during March 2009 of a Calender year client to come to the public accounting firm. Then was the audting partner for the 2009 fiscal year, than he would be impaired. If he was audting the 2010 fiscal year than there would be no independence issues because he had no affect on the books during the year and 2009 would have already been audited most likely... So I would rule C out there. D just seems to make the most sense because he is in a high enough position to where he could influence something in the audit, even though most likely he can't... Let me know what the answer is, curious... oh, and not A & B because they don't hold material interest and are not involved in the audit.

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pres2112
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Posted: 20 Jul 2010 at 19:42 | IP Logged Quote pres2112

Being a controller would impair independence if it was within the last year. B & D both impair independence and A is actually the least likely to impair independence. All the choices, especially D (due to holding a key financial position in the client's company), impairs independence in both appearance and fact of the CPA firm. I actually got this question in my Becker AUD questions. A & C are the best choices. C would be the best choice if it was over a year ago, if not, the A would be the best choice since it is IM interest and they do not have significant influence in decision making as a stock holder.
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CPADESTINED
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Posted: 20 Jul 2010 at 23:01 | IP Logged Quote CPADESTINED

Why wouldn't it be B?  I understand why C & D are out of the running.  A & B both own an immaterial amount of the clients stock (wouldn't you say that 7% is immaterial?) and A works in the Oklahoma City office.  I would say B because they own an immaterial amount of the clients stock and do not work in the office that is performing the audit.

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pres2112
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Posted: 20 Jul 2010 at 23:56 | IP Logged Quote pres2112

I would say it wouldn't be B since it doesn't state that the 7% is immaterial. You could have a situation where the 7% has some influence especially if the majority of the shareholders own less than 7%. In A it specifically states that it is immaterial, so that is why I said that. In regards to independence, independence is assessed on the firm level and not the office level, so the location wouldn't matter.
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