Brent Shaw, CPA, is the auditor of Cafe Eccel. A couple of weeks ago, Cafe Eccel

Question

Brent Shaw, CPA, is the auditor of Cafe Eccel. A couple of weeks ago, Cafe Eccel's management expressed an intention to commence litigation against Brent, alleging he was negligent in last year's audit. Brent believes there is a strong possibility that management will proceed with the litigation. However, Cafe Eccel has not fired Brent as its auditor, and he is now working on the current year's audit. Determine whether Rule 101 of the AICPA's Code of Professional Conduct has been violated. Briefly explain why the situation violates or does not violate the code.

Explanation / Answer

As there is expressed intention by the Cafe Eccel to commence litiagation against Brent alleging negligent in last year's Audit , it can be assumed that the Audito'r Independence has been impaired. It may be possible that Brent will be influennced by the threat of litigation , so the code of Independence has been violated and Brent should not continue with the Audit of Cafe Eccel for this year.

The point of independence inpairment will be the time when the Client Cafe Eccel's management expressed the intention to commence litigation against Brent .

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