Question

Megan works for a Williams and Co, a smaller CPA firm that has a total of 11 professional staff members, including two partners.

A financial statement attest client has requested the audit firm to prepare tis depreciation schedule. Megan is a new staff member
and will be responsible for this work. The client will have someone with sutiable skills, knowledge and experince to oversee the prepartion
of the depreciation schedule. The audit firm has ducumented its understanding with the client including that the client will take responsiblity for the
depreciation schedule.
Question:
Identify the section in the AICPA Codification that addresses the independence issues associated with the case dacts outline above.
-- I understand this part.
What are the threats to the independence of Williams and Co?
-- The client has more experince with depreciation schedule, so it may be threat to Megan who has less responsible for the work.
Also, there is a documention that the client will take responsilbity for the deprecaiton schedule, so if there is mistakes, the auditor can't say anything.  
But I have no idea what has to do with indendence of William and Co.
What safegurards can Williams and Co put in place so that the firm's independence is not impaired?
--Megan can work with depreciaton schedule supported by CPA at the company.

 

Answer 1

Question (1) Identify the section in the AICPA Codification that addresses the independence issues associated with the case dacts outline above.

Answer

A member should maintain objectivity and be free of conflicts of interest in discharging professional responsibilities. A member in public practice should be independent in fact and appearance when providing auditing and other attestation services.

As per section 220 of Statements on Auditing Standards, The auditor must maintain independence in mental attitude in all matters relating to the audit.

Independence. Consists of two elements, defined as follows:

• Independence of mind is the state of mind that permits a member to perform an attest service without being affected by influences that compromise professional judgment, thereby allowing an individual to act with integrity and exercise objectivity and professional scepticism.
• Independence in appearance is the avoidance of circumstances that would cause a reasonable and informed third party who has knowledge of all relevant information, including the safeguards applied, to reasonably conclude that the integrity, objectivity, or professional scepticism of a firm or member of the attest engagement team is compromised.

Question (2) : what are the threats to the independence of Williams and Co?

Answer (2)

Threat(s). In connection with independence, threats are relationships or circumstances that could impair independence. In connection with any rule but the “Independence Rule “threats are relationships or circumstances that could compromise a member’s compliance with the rules.

In the given question, Firm is preparing the depreciation schedule which is handle by the Megan a new staff member of the firm. Therefore here firm “Williams and Co” is facing “Self-review threat”

Self-review threat. The threat that a member will not appropriately evaluate the results of a previous judgment made or service performed or supervised by the member or an individual in the member’s firm and that the member will rely on that service in forming a judgment as part of another service.

Question (3) what safeguards can Williams and Co put in place so that the firm's independence is not impaired?

Answer (3)

Safeguards may partially or completely eliminate a threat or diminish the potential influence of a threat. Safeguards should eliminate the threat or reduce it to an acceptable level.

In the present case, the client has personnel with suitable skill, knowledge, who experience to oversee the preparation of the depreciation schedule. Therefore Megan can discuss the same with client.

Also, Williams and Co can use of different partners, partner equivalents, and engagement teams from different offices or that report to different supervisors to ensure firm’s independence will not impaired.