The attribute of independence has traditionally been associated with the CPA's function of auditing and expressing opinions on financial statements.

Required:

1. What is meant by "independence" as applied to the CPA's function of auditing and expressing opinions on financial statements? Explain.

2. CPAs have imposed upon themselves certain rules of professional conduct that induce their members to remain independent and to strengthen public confidence in their independence. Which of the rules of professional conduct are concerned with the CPA's independence? Explain.

3. The Wallydrag Company is indebted to a CPA for unpaid fees and has offered to issue to the CPA unsecured interest-bearing notes. Would acceptance of these notes have any bearing upon the CPA's independence from the Wallydrag Company? Discuss.

4. The Rocky Hill Corporation was formed on October 1, 1998, and its fiscal year will end on September 30, 1999. A CPA has audited, and issued an unqualified opinion on, the corporation's opening balance sheet. A month after submitting the report, the CPA is offered the position of secretary of the Company because of the need for a complete set of officers and for convenience in signing various documents. The CPA will have no financial interest in the company through stock ownership or otherwise, will receive no salary, will not keep the books, and will have no influence on its financial matters other than occasional advice on income tax matters and similar advice normally given a client by the CPA.

a. Assume that the CPA accepts the offer but plans to resign the position before beginning the annual audit and to again assume the office after issuing an opinion on the statements. Is the CPA independent? Discuss.

b. Assume that the CPA accepts the offer on a temporary basis until the corporation has gotten under way and can employ a secretary, but in any event would permanently resign the position before conducting the annual audit. Is the CPA independent? Discuss.