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In: Accounting

Sharon Gallagher, Josh Thomas, and Jo Wadley work for the audit firm W&S Partners. Sharon is...

Sharon Gallagher, Josh Thomas, and Jo Wadley work for the audit firm W&S Partners. Sharon is an audit manager, Josh is an audit senior, and Jo is an audit partner. They meet to discuss the results of a survey of other offices of W&S Partners, as well as their own office. The survey was directed toward determining if W&S Partners had any independence problems with respect to a new prospective client, Cloud 9 Inc. Based on the survey, they learn the following: • Jo Wadley and David Collier (Cloud 9's CFO) both serve on the board of directors of the local chapter of Special Olympics. • A tax senior in another office has a sister that consults with Cloud 9 on shoe design. Cloud 9 is her largest client. Fifteen employees of W&S Partners, ranging from partners to entry-level staff, own shares in retailers that sell Cloud 9 shoes. • A survey shows that 23% of professional staff working for W&S Partners have purchased Cloud 9 shoes in the past.

Required Evaluate each of the items above and their impact on the independence of W&S Partners with respect to Cloud 9. If relevant, list any additional actions you might take before making your independence recommendation to Jo Wadley.

Please type your answer, no hand writing.

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Expert Solution

Person Associated 1 Association 2 Related to Cloud 9 Impact on Cloud 9
Sharon W & S Partner No Connection with Cloup 9 No Only Customer, No impact on Independency
Josh Thomas W & S Partner No Connection with Cloup 9 No Only Customer, No impact on Independency
Jo Wadley W & S Partner Board of Director of Special Olympic No No impact, as serving as a board member in other regualtory body, will not be impact over the level of independenc in cloud 9 client. As However, it may hit the objectivity of the Jo Wadley at a whole.
David Collier Cloud 9 CFO Board of Director of Special Olympic Yes Yes, It is apparent that it will hit the independence level, as CFO of Cloud 9 , will always keeps the tender or other projects in Special Olympic programme, hence Independence and objectivity both are tempered in his case.
Tax Senior W & S Partner _Another Office His Sister is the Designer ( Whole Project) Yes No impact on the independence level, May hit the objectivity, as his sister is the sole designe reviewer of the Cloud 9. With this relation, it may impact the objectivity of the tax senior in respect of the service offerred to Cloud 9.
23% Staff W & S Firm Customer regular with Cloud 9 No No, Merely a Customer, however, it is really unkonwn that how much these 23% contribiute to the revenue portion of the Cloud 9, hence merely a customer of any product of the client will not termed as harmful to the level of independence of the client Cloud 9.
Here, as Stated 23% of the Staff of W & S is purchasing Cloud 9 Shoes. 4 Persona re enlisted above which in total show the percentage of 26% itself.
On the Above discussion, it can be concluded that the Decision power shall be in the hand of the of the Partners who are no longer associated in any terms with the cloud 9, It means amajor decision like, remuneration, Audit plans, scope and other more relevant factors etc. shall be dealt by the Sharon and Josh. Tax Senior, shall disclsoe the interest or relation with the Cloud 9 if he is in team of audit. However, Jo can be shifted with leading with the other client also. David shall not be associated with any projects associated with Cloud 9, as the independence level and objectvty both will be hampered as he is the CFO of the company.

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