John is a partner in an audit firm. Last year, another partner, Ellen, retired and joined...

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John is a partner in an audit firm. Last year, another partner, Ellen, retired and joined GGG Inc. as a director. GGG develops video games based on recent movies. John, Ellen and two other audit firm partners have an investment partnership, each owning 25%, called Safe-Invest, which pools their money together and makes investments. All investment decisions are made by the four partners together. Safe-Invest invested $30,000 in GGG Inc., which is now starting to pay dividends. GGG plans to hire more programmers and a professional marketing firm, as well as issue shares to the public, so an audit is needed. Ellen will be on the audit committee (to protect Safe-Invest's investment), and Ellen called John to ask him to provide the audit. John was hesitant about accepting the audit engagement, so GGG paid for a two-week holiday in California for John's family, which allowed John to attend a video game convention there and observe GGG's marketing presentation. GGG will only need bank financing for a short time. As soon as the firm issues shares to the public, the funds raised will be used to reduce the bank debt to zero balance. Required: Identify independence issues involving the audit of GGG Inc. Be specific to explain the effect on John's independence. Be very specific in explaining the WHAT and the WHY. John is a partner in an audit firm. Last year, another partner, Ellen, retired and joined GGG Inc. as a director. GGG develops video games based on recent movies. John, Ellen and two other audit firm partners have an investment partnership, each owning 25%, called Safe-Invest, which pools their money together and makes investments. All investment decisions are made by the four partners together. Safe-Invest invested $30,000 in GGG Inc., which is now starting to pay dividends. GGG plans to hire more programmers and a professional marketing firm, as well as issue shares to the public, so an audit is needed. Ellen will be on the audit committee (to protect Safe-Invest's investment), and Ellen called John to ask him to provide the audit. John was hesitant about accepting the audit engagement, so GGG paid for a two-week holiday in California for John's family, which allowed John to attend a video game convention there and observe GGG's marketing presentation. GGG will only need bank financing for a short time. As soon as the firm issues shares to the public, the funds raised will be used to reduce the bank debt to zero balance. Required: Identify independence issues involving the audit of GGG Inc. Be specific to explain the effect on John's independence. Be very specific in explaining the WHAT and the WHY.

Answer rating: 100% (QA)

There are several independence issues involving the audit of GGG Inc that affect Johns independence as a partner in the audit firm These issues can be ... View the full answer