This website uses cookies to ensure you have the best experience. Learn more

Audit Case Essay

1806 words - 8 pages

The Case
In this case, Patrick Walker is an audit partner at a medium-sized CPA firm. Pat has decided to invest in a mutual fund that is managed by a third-party distributor, Fidelity Investments. Of the shares that are outstanding of this mutual fund, he owns less than 1%. It is also important to note that Pat’s mutual fund is diversified. Pat’s private client, XYZ Corporation, is a part of his diversified investment portfolio and happens to be one of the major holdings of the 1% that he possesses. Since Pat is an audit partner and XYZ Corporation is his client, he plays a determining role in the key decisions of the audit and that he possesses significant influence over the audit ...view middle of the document...

The fund managers or property managers would be the people who are distributing Pat’s financial investment. Hence, Jack is not directly investing in XYZ Corporation and he has an indirect financial interest in his client. With an indirect investment, materiality now has to be considered and analyzed.

The Issues
Obviously, the primary issue at hand is independence. According to the Generally Accepted Auditing Standards, “the auditor must maintain independence in mental attitude in all matters relating to the audit”. This means that auditor independence is in fact considered a mental state and that the perception of Pat’s independence from third parties (financial statement users, management, client, etc.) is vital. Therefore, investors or other users of XYZ Corporation’s financial statements can choose to evaluate Jack’s “appearance” of independence and decide that he is not independent in mental attitude. If this situation were to happen, then Jack could possibly get his license suspended and endure other troublesome circumstances.

Additionally, “a member in public practice shall be independent in the performance of professional services as required by standards promulgated by bodies designated by Council”. With Pat having less than 1% of his mutual fund invested in his private client, it would significantly increase the skepticism among the financial statement users and possibly erode their confidence if they do not perceive that Pat is actually independent. Consequently, it makes sense to question if he is really “independent” of his client and what could possibly cause that independence to be impaired.

The official grounds of what results in an impairment of independence is stated clearly in the State Board of Accountancy Code of Conduct for Georgia. Hence, since Jack is a CPA in the State of Georgia and is providing services in the profession of public accounting, he must adhere to the State Board of Accountancy Code of Conduct for Georgia. Pat’s independence is considered to be impaired if: he is a covered member that has a direct or material indirect interest in his client, was an executor of any estate that was committed to acquire any financial interest in the client, held a joint business investment with the enterprise of any principal stockholder thereof which was material in relation to the net worth of himself or the client, or if he had any loan to or from the client or any principal stockholder thereof. Clearly, one of these independence regulations seems to have been broken by Pat. That is, having a material indirect interest in his private client, XYZ Corporation.

As previously stated, Pat has a mutual fund in which most of the holdings are in XYZ Corporation. Since Fidelity Investments manages this mutual fund, it is apparent that Pat has an indirect investment in his client. However, the State Board of Accountancy Code of Conduct for Georgia says that the indirect investment must be a “material...

Other Papers Like Audit Case

Raft Accreditation Audit Case Study Task I

3345 words - 14 pages Executive Summary of Accreditation Audit June 2012 I prepared and reviewed an accreditation audit for Nightingale Community Hospital to organize and ensure compliance with Joint Commission standards for our hospital. We are preparing for a site visit that should occur within the next 13 months. I have reviewed the current compliance status of our hospital and will explain our corrective action plan that will ensure compliance with the Joint

Case 1 Internal Audit Essay

1196 words - 5 pages A. The key processes used by Pizza Inc. at their individual site locations: * On the job training is the primary method for employees to learn policies and procedures. * An order will come into Pizza Inc. it will be written down on pre-numbered pads. The date, time of call, name, address, phone number, type of crust, and toppings requested are all taken down. If mistakes are made the pre-numbered order form will be thrown out and a

Audit Quality

843 words - 4 pages Derek Fiestadt 3/12/15 Professor Muzatko Audit Quality Due to several recent accounting scandals over the last 20 years, regulatory organizations such as the SEC and AICPA have required a higher standard for auditors to comply. All audits are expected to conform to Generally Accepted Auditing Standards (GAAS), which would lead one to believe that all audits are of the same quality. This however is not the case. In this paper I will discuss

Audit Quality vs Audit Independence

1590 words - 7 pages auditors are not completely objective if they provide significant other services that put them in a commercial business relationship with the client. The paper illustrated this point by giving the famous case of Enron and commented that we would tend to take independent external audit for granted until a failure occurred. Additionally, some recent research highlighted a reduction in public trust in audit quality in the 1990s; hence Francis (2004

Audit Evidence

1868 words - 8 pages determines whether it is a risk assessment procedure, test of controls, or substantive procedure. Inspection 15.     Inspection involves examining records or documents, whether internal or external, in paper form, electronic form, or other media, or physically examining an asset. Inspection of records and documents provides audit evidence of varying degrees of reliability, depending on their nature and source and, in the case of internal

The Audit

1442 words - 6 pages Chapter 1 Introduction to Audit & Assurance Engagements Difference between ACCOUNTING and AUDITING • Accounting – preparing financial statements • Auditing – examining financial statements Financial Statements Consist of: • A statement of financial position • A statement of profit or loss • A cash flow statements • Notes to the financial statements • Statement of movement in reserves Together with the

Audit Midterm

1374 words - 6 pages Seminar in Auditing Spring 2015 Name ________________________________________________________________ Answer the following questions (1-9) with a short answer – no more than a paragraph. 1. What was the significant of the McKesson & Robbins case? It redefined some auditing standards. Prior to this case, auditors had no responsibility to verify inventory. As a result of the McKesson & Robbins case, it was determined

Audit Scandal

2065 words - 9 pages in accounting rules that allowed it to book revenue from huge energy-derivative contracts at their gross value, not their net value by adopting mark to market accounting. In this case, Enron would build an asset such as power plant and immediately claimed that the projected profit on its books even though it hadn’t made any money yet from it. If the revenue from the plant was less than the projected amount, instead of taking the loss , the

Audit Program

1025 words - 5 pages SECOND LIFE CONSULTING XYZ Company First Floor Physical Security Audit As of December 2, 2013 W/P# A4 Prepared by: F.C. Date: 12/02/13 Reviewed by: F.C. Date: 12/04/13 SUMMARY OF AUDIT FINDINGS W/P # C1 FINDINGS The glass construction of the doors and walls of the building does not safeguard privacy of the building's interior. There are only two cameras to cover four entrances and exits on the first floor. The two available cameras do not

Brand Audit

2218 words - 9 pages Objective for Brand Audit The task assigned for our Brand Management Project is to conduct a Brand Audit of any existing brand and discuss any social cultural or ethical issues faced by the brand along with he brands market, Consumer Profile, Competitors profile, brand Inventory, Brand equity, core brand Values and assess its strengths, weaknesses and opportunities. Introduction

Audit Group Project

3075 words - 13 pages Audit Group Project 1a. The transition between predecessor auditor and successor auditor is governed by AU Section 315.  It details a list of responsibilities on each side prior to the acceptance of the audit.  The predecessor auditor is considered the one who reported on the most recent audited financial statements or was engaged to perform this audit but did not complete it.  The successor is an auditor who is considering accepting an

Related Essays

Lakeside Audit Case Essay

2635 words - 11 pages Audit Lakeside Case October 13, 2015 1. An engagement letter is an essential aspect in establishing an understanding between the client and the audit firm. This documentation is required in order to identify the objective and scope of the audit, outline the specific responsibilities of management and the audit firm, identify inherent limitation of the audit, ascertain the applicable financial reporting framework, and the expected forms

Audit Case 3 1 Essay

697 words - 3 pages Brian Finley Auditing Case 3-1 1. What alternatives are available? a. One alternative is that Brent could lie about doing his share of the audits. He could ‘pretend’ to forget a section of his duties in order to shorten up his work load and finish under the budget line. That is a good idea because he would spend more time with his wife and make her happier and also make the firm happy when looking at the budget. It is bad, however

Anne Aylor Case Solution (Audit) Essay

1994 words - 8 pages G4. ƒƒ No material misstatements were discovered during the prior year audit of Ann Aylor’s financial statements. The case was prepared by Mark S. Beasley, Ph.D. and Frank A. Buckless, Ph.D. of North Carolina State University and Steven M. Glover, Ph.D. and Douglas F. Prawitt, Ph.D. of Brigham Young University, as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of an administrative

Audit Evidence Of Grande Store Case

1023 words - 5 pages Audit Evidence of Grande Store Case Nancy Johnson Rasmussen College Author Note This paper is being submitted on January 23, 2015, for Gary Rosner, A340 Advanced Auditing Concepts and Standards course. Audit Evidence of Grande Store Case When it came to the audit of the Grande Store there was insufficient numbers (four out of 1,100) to be an exact for the confirmations that were made regarding what was spent by McClure Advertising