Ethics

1．Under the ethical standards of the profession, which of the following business relationships would generally not impair an auditor's independence?

a. Promoter of a client's securities.

b. Member of a client's board of directors.

c. Client's general counsel.

d. Advisor to a client's board of trustees.

ANSWER:

Choice "d" is correct. Rule 101 of the Code of Conduct requires that members be independent in fact and appearance in audits and attestation services. Independence is impaired if an auditor is an employee of an audit client or is able to make management decisions on behalf of an audit client. An advisor of an audit client's board of directors is not an employee, nor is the advisor able to make management decisions for the audit client. The advisor does not make decisions, the advisor simply gives advice that the client is free to accept or reject.

Choice "a" is incorrect. A promoter of the audit client's securities has a direct relationship with the client.

A promoter is a business relationship that would impair independence.

Choice "b" is incorrect. A member of the board of directors of the audit client is able to make

management decisions for the client. A member of the board is a business relationship that would impair

independence.

Choice "c" is incorrect. A client's general counsel is an employee. A general counsel is a business

relationship that would impair independence

2.At a confidential meeting, an audit client informed a CPA about the client's illegal insider-trading actions. A year later, the CPA was subpoenaed to appear in federal court to testify in a criminal trial against the client. The CPA was asked to testify to the meeting between the CPA and the client. After receiving immunity, the CPA should do which of the following?

a. Take the Fifth Amendment and not discuss the meeting.

b. Site the privileged communications aspect of being a CPA.

c. Discuss the entire conversation including the illegal acts.

d....