Question

In: Accounting

1. BDO Seidman's attorneys pointed out correctly that professional standards do not prohibit auditors and client...

1. BDO Seidman's attorneys pointed out correctly that professional standards do not prohibit auditors and client personnel from being "friends." At what point do such relationships result in violations of the auditor independence rules and guidelines? Provide hypothetical examples to strengthen your answer.

2. According to court testimony, on 20 July 1995, Drew Bergman recommended to HMI's board of directors that Mei-ya Tsai be hired as the company's chief accounting officer (CAO). One week later, BDO Seidman issued its audit report on HMI's 1995 financial statement. Under presently existing professional standards would this situation have presented an independence "problem" for BDO Seidman? Defend your answer.

Solutions

Expert Solution

Answer:

1.

There are two contemplations when taking a gander at the connection between an auditor and a client.The auditor isn't just entrusted with remaining independent,the auditor should likewise keep up the presence of staying independent.

Numerous people move from performing audits into corporate customer jobs ; almost certainly, somebody in a senior fiscal position will probably have a type of individual relationship with an individual from its audit firm ( and maybe with an individual from its audit group)

The relationship becomes hazardous or problematic when the customer looks to impact the auditor's evaluation ,and additionally the auditor educates the customer outside concerning the audit procedure ( for instance ,setting up fiscal data frameworks ,going about as a investment counselor - or giving any of different sorts of services restricted by Sarbanes - Oxley)

Auditors and customers ought to likewise be cautious in the exchanging of gifts and other benefits.A customer giving an auditor an instance of fine wine as a wedding blessing - regardless of whether the blessing or gift is expected to be an personal gift ,and not a corporate blessing or corporate gift could be misjudged as impact - looking for .In such a circumstance ,the customer ought to get authorization to give the gift from his manager with the goal that it is declared and not 'found' sometime in the not too distant future.

Another example would be if the auditor doesn't report a possibly suspicious exchange to the audit council if such an exchange reflects adversely his customer.

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2.

State climate this circumstance has introduced an independence issue for BDO Seidman:

Numerous auditors move from working for a audit firm into a customer monetary or fiscal role ,so this kind of event isn't unusual.

In the event that an auditor is thinking about a transition to work for a customer that they are right now auditing(weather or not they have an offer) ,the auditor's independence is considered compromised.

The best possible activity is to report the potential move to a consistence individual at the auditor's firm and remove oneself from the audit group until the issue is finished up or concluded.

This sort of circumstance is shrouded in both the AICPA code of expert or professional conduct .likewise ,Sarbanes - Oxley (SOX) denies or prohibits an audit firm from giving audit service to an organization that as of late procured a previous or former audit employer to a key control position.

For the situation depicted ,Mei-YA Tsai ,ought to have removed him-self from the audit procedure once he started to think about joining health management .Moreover ,under SOX ,BDO would not be permitted to give audit services to health management in the latest year.


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