Question

An auditor is considering the acquisition of a new client. The auditor owns shares of the potential new client’s voting common stock. The market value of the auditor’s investment is immaterial with respect to the auditor’s personal income and wealth. If the auditor were to perform an attest service for this client, discuss which one AICPA Rule of Conduct would be most relevant to this situation and whether the auditor would be in violation of it. Explain and be specific.

Answer 1

An auditor is considering the acquisition of a new client. The auditor owns shares of the potential new client’s voting common stock. The market value of the auditor’s investment is immaterial with respect to the auditor’s personal income and wealth. In this case if the auditor was to perform an atleast service then Section ET 55 would be relevant.

Objectivity and Independence:

Yes the auditor would be in violation of the above code of conduct.

This is because:

Objectivity is a state of mind, a quality that lends value to a member's services. It is a distinguishing feature of the profession. The principle of objec- tivity imposes the obligation to be impartial, intellectually honest, and free of conflicts of interest. Independence precludes relationships that may appear to impair a member's objectivity in rendering attestation services.
Members often serve multiple interests in many different capacities and must demonstrate their objectivity in varying circumstances. Members in public practice render attest, tax, and management advisory services. Other members prepare financial statements in the employment of others, perform internal auditing services, and serve in financial and management capacities in industry, education, and government. They also educate and train those who aspire to admission into the profession. Regardless of service or capacity, members should protect the integrity of their work, maintain objectivity, and avoid any subordination of their judgment.
For a member in public practice, the maintenance of objectivity and independence requires a continuing assessment of client relationships and pub- lic responsibility. Such a member who provides auditing and other attestation services should be independent in fact and appearance. In providing all other services, a member should maintain objectivity and avoid conflicts of interest.
Although members not in public practice cannot maintain the appear- ance of independence, they nevertheless have the responsibility to maintain objectivity in rendering professional services. Members employed by others to prepare financial statements or to perform auditing, tax, or consulting services are charged with the same responsibility for objectivity as members in pub- lic practice and must be scrupulous in their application of generally accepted accounting principles and candid in all their dealings with members in public practice.