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Audit: appearance or fact of lack of independence

Marie Janes encounters the following situations in doing the audit of a large auto dealership, Janes is not a partner.

Situations as follows:

1. The sales manager tells her that there is a sale (at a substantial discount) on new cars that is limited to long-established customers of the dealership. Because her firm has been doing the audit for several years, the sales manger has decided that Janes should also be eligible for the discount.

2. The auto dealership has an executive lunchroom that is available free to employees above a certain level. The controller informs Janes that she can also eat there any time.

3. Janes is invited to an attends the company's annual Christmas party. When presents are handed out, she is surprised to find her name included. The present has a value of approximately $200.

Problem

a) Assuming Janes accepts the offer or gift in each situation, has she violated the rules of conduct?
b) Discuss what Janes should do in each situation.

Solution Preview

First, the rules of conduct start at the top, but they work down to every employee in a CPA firm. The firm must establish the code of conduct and then 'live' the code. The tone is established and monitored at the top and enforced through training and constant evaluation. Every person in the organization learns that deviation from the code will not be tolerated. (Arthur Anderson may have forgotten part of that when dealing with Enron.)

Much of the reason for a strong code of conduct relates to independence. Everyone has gotten into the act of promoting independence including the SEC, the GAO, and the AICPA. The objectives of the SEC for the independence requirement have two goals: "One goal is to foster high quality audits by minimizing the possibility that any external factors ...

Solution Summary

The solution explains the ethical criteria by the AICPA, the SEC and the GAO with respect to independence of an auditor and the audit firm. Then that criteria is applied to each of the situations presented in the problem.

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