Suppose you have just joined an office of an accounting firm, MC Partners, that provides audit...
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Suppose you have just joined an office of an accounting firm, MC Partners, that provides audit and various types of non-audit services to its clients. Within a few months of joining, you discover four pieces of information regarding one particular office client, Davey International, that could present severe threats to auditor independence. You know of the conceptual framework of the Code of Ethics that guides auditors on identifying threats to auditor independence. Required Identify the most significant threat to auditor independence likely to arise from each of the four pieces of information, summarized below. Explain your reasoning: A. The office earns 80 percent of its total office revenue from providing several lucrative types of non-audit services to Davey International. (1.5 marks) B. The taxation division of the office provides tax planning services to Davey International to increase Davey's tax savings. The resulting tax strategies significantly affect financial reporting, including estimates of income taxes. The audit division of the office does not have significant expertise in taxation and has traditionally consulted senior staff in its taxation division to evaluate the quality of tax reporting in clients. (1.5 marks) C. The senior managing partner of the office met with parliamentary staff assisting government lawmakers. During this meeting the partner promoted the use of language in an upcoming bill proposing amendments to legislation that would favor the business interests of Davey International. (1.5 marks) D. The audit engagement teams typically interact significantly with the Chief Financial Officer (CFO) in their client firms. A long-serving and highly-respected audit partner left his position at MC Partners three years ago and recently been appointed as the new CFO of Davey International. (1.5 marks) Suppose you have just joined an office of an accounting firm, MC Partners, that provides audit and various types of non-audit services to its clients. Within a few months of joining, you discover four pieces of information regarding one particular office client, Davey International, that could present severe threats to auditor independence. You know of the conceptual framework of the Code of Ethics that guides auditors on identifying threats to auditor independence. Required Identify the most significant threat to auditor independence likely to arise from each of the four pieces of information, summarized below. Explain your reasoning: A. The office earns 80 percent of its total office revenue from providing several lucrative types of non-audit services to Davey International. (1.5 marks) B. The taxation division of the office provides tax planning services to Davey International to increase Davey's tax savings. The resulting tax strategies significantly affect financial reporting, including estimates of income taxes. The audit division of the office does not have significant expertise in taxation and has traditionally consulted senior staff in its taxation division to evaluate the quality of tax reporting in clients. (1.5 marks) C. The senior managing partner of the office met with parliamentary staff assisting government lawmakers. During this meeting the partner promoted the use of language in an upcoming bill proposing amendments to legislation that would favor the business interests of Davey International. (1.5 marks) D. The audit engagement teams typically interact significantly with the Chief Financial Officer (CFO) in their client firms. A long-serving and highly-respected audit partner left his position at MC Partners three years ago and recently been appointed as the new CFO of Davey International. (1.5 marks)
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Related Book For
Auditing Cases An Interactive Learning Approach
ISBN: 9780134421827
7th Edition
Authors: Mark S Beasley, Frank A. Buckless, Steven M. Glover, Douglas F Prawitt
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