Question

Veronica Green, CPA, is a sole practitioner. She has been practicing as an auditor for 10 years. Recently a long-standing audit client asked Green to design and implement an integrated computer-based accounting information system. The fees associated with this additional engagement with the client are very attractive. However, Green wonders if she can remain objective on subsequent audits in her evaluation of the client's accounting system and its records if she was responsible for its design and implementation. Green knows that professional auditing standards require her to remain independent in fact and appearance from her auditing clients.

PLEASE No googled response.

Required:

What do you believe auditing standards are mainly concerned with when they require independence in fact? In appearance?

1. Why is it important that auditors remain independent of their clients?

2. Do you think Green can accept this engagement and remain independent? Justify your response.

Answer 1

As per ET Section 101 A member in public practice shall be independent in the performance of professional services as required by standards promulgated by bodies designated by Council. This means that when a CPA is conducting an audit of the client's business, his/ her opinion should not get biased due to any reasons what so ever. To ensure such independece, the public accountant is refrained from entering into certain contracts with the client whose audit is being conducted by him/her.

Indepence is essential to maintain the authenticity and integrity of professional service being delivered to the client and also to ensure that whatever opinion the public accountant is giving in his/ her report is not influenced by any other factors.

As per the explanation of Rule 101, engaging in the design, development, installation or integration of the client's information system does not lead to impairment of the auditor's independence, provided the client makes all the management decisions.

Hence, in the given case, Green can accept this engagement for design and implementation of an integrated computer based accounting information system while manitaining her indepence at the same time, provided she does not indulge in management decisions or supervise client's personnel in the daily operation of the client's informatioon system. However, she can provide initial training and instruction to the client's employees on the newly implemented information system.

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