Question

YOUCPA is a regional CPA firm engaged in public audit work of small- and medium-size firms in the Midwest. The YOUCPA firm has their main office in Chicago, Illinois, and regional offices in Minneapolis, Minnesota and Indianapolis, Indiana. The managing partners are located in Chicago. YOUCPA also provides tax preparation and information consulting to customers and is an approved PCOAB audit firm.

Your client, the publicly traded Fresno Freezer Corporation, is located in Elgin, Illinois, a small city located outside of Chicago. The client has the main plant there and has distribution centers in Indianapolis and Minneapolis.

The Fresno Freezer Corporation has contracted with YOUCPA for an audit. During the audit, the audit team has asked you to determine if everyone on the engagement team is independent.

The following individuals are on the engagement team and on the management of YOUCPA:

• Sarah Ball, Senior Partner, YOUCPA
• Bill Davis, Managing Partner, YOUCPA
• David Youssef, Manager of Taxation Services, YOUCPA
• Yewel Faraday, Manager of Information Consulting, YOUCPA
• Frank Bell, Supervisor of Auditing assigned to Client, YOUCPA

The following individuals are on the engagement team and on the management of YOUCPA:

• Sarah Ball, Senior Partner, YOUCPA
  • Manages the YOUCPA partnership
  • No financial interest in client
  • No relative with firm
  • No past history working with client in a direct manner (meaning working for the client as an employee)
• Bill Davis, Managing Partner, YOUCPA
  • Managing the audit of the client
  • No financial interest in the client
  • No relative with the firm
  • No past history working with the client in a direct manner
• David Youssef, Manager of Taxation Services, YOUCPA
  • Manages the taxation services for the accounting firm
  • No financial interest in the client
  • No relative with the firm
  • No past history working with the client in a direct manner
• Yewel Faraday, Manager of Information Consulting, YOUCPA
  • Manages the information consulting for the accounting firm
  • Yewel has no financial interest in the client
  • No relative with the client in a direct manner
• Frank Bell, Supervisor of Auditing assigned to Client, YOUCPA
  • Will supervise the audit at the main plant
  • No financial interest in the client
  • Wife works with client as a worker in the plant
  • Wife has no control or influence on the impact or creation of the financial statements
  • Wife has been working there for 20 years

For each individual on the engagement team and on the management of YOUCPA, complete the following:

• Determine if they are or are not independent.
• Explain your reasoning.

Answer 1

The question asks to determine whether the given 5 individuals on the engagement team and management of YOUCPA are independant from the client that is Fresno Freezer corporation.

They are :

Sarah ball

BIll Davis

David Youssef

Yewel faraday

Frank Bell

Now if you look at the further information given regarding to each of them, we can find that its similar in the case of the first four of them. Hence we can say Sarah , Bill , David and Yewel are completely independant from Fresno Freezer regarding the given information as they have no financial interest in the client , neither do they have any relative working at the client nor have they worked for the client in the past. These evidence are enough for us to conclude for now that these 4 are completely independant from the client.

Now, in regards to Frank Bell, it is stated that his wife is working in the plant where he will be supervising the audit. It also said that she has no role and is in no way linked to the preparation of the financial statements at Fresno Freezer.

But the point to be noted here is that she has been working at Fresno Freezer for the past 20 years. That is a very long time to be working at the same company and for that reason she is bound to have really good relationship with majority of the staff at Fresno Freezer. This could pose a threat to the independance of Frank Bell as these staffs could try and convince his wife to talk to him and solve some issues without anyone else in the audit team knowing in case there are any issues at all.

Due to his wife's long lasting relation with audit client we have to come to a conclusion that Frank Bell, the supervisor for the clients audits independance is in question and he should probably be removed from the audit engagemnt team.

Hope this answers the question, If you liked the answer please give a vote up, it will be quite encouraging for me. Thank You.