Submitted by: Submitted by shemay05324
Views: 10
Words: 1816
Pages: 8
Category: Business and Industry
Date Submitted: 09/03/2015 11:05 PM
26 Case 1.4 Health Management, Inc.
Suggested Solutions to Case Questions
1.
The
two
dimensions
of
auditor
independence
are
relevant
to
this
context:
appearance
of
independence and de facto independence. A close friendship between an auditor and a client employee
can
jeopardize
the
auditor’s
appearance
of
independence
(and
that
of
the
entire
audit
team)
even
though
the
auditor
scrupulously
protects
his
or
her
de
facto
independence.
If
third
parties
lose
confidence in an auditor’s independence, then the purpose of the audit is undermined, period. I would
suggest that the de facto independence
of
an
auditor
has
been
compromised
by
a
relationship
with
a
client
employee
when
that
relationship
begins
to
influence
important
decisions
of
the
auditor.
For
example, if an auditor decides
not
to
pursue
a
suspicious
transaction
or
other
item
because
doing
so
might result in negative consequences for his or her friend, clearly the actual independence of the auditor
has been compromised. More globally, I would suggest
that
an
auditor’s
de
facto
independence
has
been impaired by a client relationship when that relationship results in the auditor violating one or more
GAAS.
Loss
of
independence
may
result
in
an
auditor
failing
to
gain
a
proper
understanding
of
a
client’s
internal
controls,
deciding
not
to
collect
sufficient
appropriate
evidence
to
support
an
audit-
related decision, or even issuing an inappropriate audit opinion.
2.
Interpretation
101-
2,
“Employment
or
Association
with
Attest
Clients,”of
the
AICPA
Code
of
Professional
Conduct
addresses
the
situation
in
which
an
auditor
is
considering
the
possibility
of...