In which of the following situations would a CPAs independence be considered impaired according to the code of professional conduct?

the AICPA Code of Professional Conduct. For each situation, state the applicable rule of conduct and whether it is a violation.

 a. Stefan, CPA, provides tax services, management advisory services, and bookkeeping services and also conducts audits for the same nonpublic client. Because the firm is small, the same person often provides all the services.

 b. Roberta Marteens is a CPA, but not a partner, with three years of professional experience with Johnson and Batchelor, CPAs. She owns 25 shares of stock in an audit client of the firm, but she does not take part in the audit of the client, and the amount of stock is not material in relation to her total wealth.

 c. A nonaudit client requests assistance of Taylor Bordeaux, CPA, in the installation of a local area network. Bordeaux has no experience in this type of work and no knowledge of the client's computer system, so she obtains assistance from a computer consultant. The consultant is not in the practice of public accounting, but Bordeaux is confident of her professional skills. Because of the highly technical nature of the work, Bordeaux is not able to review the consultant's work.

 d. In preparing the personal tax returns for a client, Sarah Milsaps, CPA, observed that the deductions for contributions and interest were unusually large. When she asked the client for backup information to support the deductions, she was told, "Ask me no questions, and I will tell you no lies." Milsaps completed the return on the basis of the information acquired from the client.

 e. Silvia Panster, CPA, set up a casualty and fire insurance agency to complement her auditing and tax services. She does not use her own name on anything pertaining to the insurance agency and has a highly competent manager, Meg Emrich, who runs it. Panster often requests Emrich to review the adequacy of a client's insurance with management if it seems underinsured. She believes that she provides a valuable service to clients by informing them when they are underinsured. f. Seven small Austin, Texas, CPA firms have become involved in an information project by taking part in an interfirm working paper review program. Under the program, each firm designates two partners to review the audit files, including the tax returns and the financial statements, of another CPA firm taking part in the program. At the end of each review, the auditors who prepared the working papers and the reviewers have a conference to discuss the strengths and weaknesses of the audit. They do not obtain authorization from the audit client before the review takes place.

 g. Francisco Hernandez, CPA, serves as controller of a U.S.-based company that has a significant portion of its operations in several South American countries. Certain government provisions in selected countries require the company to file financial statements based on international standards. Francisco oversees the issuance of the company's financial statements and asserts that the statements are based on interna-tional financial accounting standards; however, the standards he uses are not those issued by the International Accounting Standards Board

Answer & Explanation

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Step-by-step explanation

a. Rule 101 - Independence. No Violation

                   If the services performed conform to the requirements of Interpretation 101-3, independence of Stephan would not be considered to be impaired. There would be a violation of SEC rules if the client were publicly held.

b. Rule 101 - Independence. No Violation

                 Roberta Marteens is not a partner nor is she assigned to the engagement team for the audit client.

c. Rule 201 - General Standards. Violation

                 Interpretation 201-1 states that a member who accepts a professional engagement implies that he or she has the necessary competence to complete the engagement according to professional standards. Taylor Bordeaux has violated the rule since she does not have the expertise to review the work of the consultant hired by her. She should have suggested that the company hire the consultant directly.

d. Rule 102 - Integrity and Objectivity. Violation

                This rule states that in tax practice, a member may resolve doubt in favor of his or her client as long as there is reasonable support for his or her position. In the example case, the client has provided no support for the unusual deductions. Sarah Milsaps has violated Rule 102 by not requiring reasonable support for the deductions.

e. Rule 301 - Confidential Client Information. Violation

              The client should have been notified that the review was to take place, and an attempt made to obtain the client's permission for such review since the review was not a part of an AICPA, state CPA society, or Board of Accountancy review program. The firms violated Rule 301 by not obtaining consent from the client for the review.

g. Rule 203 - Accounting Principles. Violation

                This rule designates that the International Accounting Standards Board (IASB) is the established body for issuing international financial accounting standards. Francisco Hernandez's assertion that the financial statements are based on international financial accounting standards would be in violation of Rule 203 because he did not use standards issued by the IASB

Which of the following situations would impair the auditor's independence?

Would the independence of the CPA be considered to be impaired with respect to the client?

Which of the following will impair the independence of a CPA in public practice?

What does independence mean for a CPA?