You are the partner-in-charge of a large metropolitan office of a regional publi

Question

You are the partner-in-charge of a large metropolitan office of a regional public accounting firm. Two members of your professional staff have come to you to discuss problems that may affect the firm’s independence. Neither of these situations has been specifically answered by the AICPA Professional Ethics Division. Therefore, you must reach your own conclusions as to what to advise your staff members, and what actions, if any, are to be taken by the firm.

Case 1: Don Moore, a partner in the firm, has recently moved into a condominium that he shares with his girlfriend, Joan Scott. Moore owns the condominium and pays all the expenses relating to its maintenance. Otherwise, the two are self-supporting. Scott is a stockbroker, and recently she has started acquiring shares in one of the audit clients of this office of the public accounting firm. The shares are held in Scott’s name. At present, the shares are not material in relation to her net worth.

Case 2: Mary Reed, a new staff auditor with the firm, has recently separated from her husband. Mary has filed for divorce, but the divorce cannot become final for at least five months. The property settlement is being bitterly contested. Mary’s husband has always resented her professional career and has just used community property to acquire one share of common stock in each of the publicly owned companies audited by the office in which Mary works.

For each case, you are to:

Set forth arguments indicating that the firm’s independence has not been impaired.

Set forth arguments indicating that the firm’s independence has been impaired.

Express your personal opinion. Identify those arguments from part (a) or part (b) that you found most persuasive. If you believe that the firm’s independence has been impaired, make suggestions about how the problem might be resolved.

Explanation / Answer

CASE: 1 Both Moore & Joan are self-supporting and neither has any vested interest nor control over the others' personal holdings or acquisitions. Moreover, the shares are in Joan's personal name and they are not also material enough ,to exert any significant influence over the conduct of affairs of the firm. They are also not legally wedded couple nor any immediate family member.Co-habiting alone will not deter anyone from acquiring shares in the other person-connected firm.In fact,it will facilitate some investment in a known & reliable proposition. So, the audit firm's independence ,is not in any way impaired, in this particular case. CASE:2 Mary Reed's husband may not have any direct influence ,but Mary might have to act in a certain way ,fearing disturbances from him as they are already in a legal tiff and also that he does not care about her job or employers. So, there is every possibility that Mary's actions pertaining to the firm , will bear the effct of her sour relationship with her husband. He may do things wantonly just to harm her and embarrass her in the eyes of her colleagues, even though he might not have anything personal against the firm. So, the audit firm's independence ,has all likelihood to be impaired. It will resolve on its own, given some time & once their divorce is through.

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