The Problem: In the course of an audit engagement with Expo, Inc., senior audito

Question

The Problem: In the course of an audit engagement with Expo, Inc., senior auditor Miller overheard Jackson and another audit staff member discussing their personal investment portfolios. While Miller was sure that both staff auditors understood that they were prohibited from holding a direct financial interest in their client, Miller was not confident that both were clear with respect to financial interests held by relatives. In fact, Miller was convinced that Jackson told his audit team mate that he sold stock in Expo to his mother after he had performed some audit procedures. The amount was unknown to Miller. Miller discussed this with the engagement partner who felt that this issue should be covered in a memo to the firm’s audit staff. Required: Prepare an interoffice memorandum to all staff auditors of Taylor and Co., CPAs. Restrict the subject matter to financial interests in clients that are held by the relatives of auditors. Do not refer to Expo or any other client in this memo.

Explanation / Answer

Dear Student,

Memo on Financial Interest in Client Business by Audit Staff

An Audit is a professional judgement provided by an Auditor basis the situation , applicable laws , his professional Knowledge and skepticism. Therefore an Auditor holds an important responsibility while serving the report and must be an independent person; His judgement should not be influenced by any interest and therefore require that no Auditor should hold any financial interest in the business of its client. A Financial interest may be in the form of loan to be repaid; interest to be paid etc.

Also, there should be no financial interest holdings with Auditors' immediate family which include parents and children;Also, there should be no direct or indirect financial interest of Auditor in the controlling entity of the client;

In short an Auditor should be financially independent to provide a true opinion through the Audit report;

Regarrds,

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