External auditing - assignment 2

External auditing - assignment 2 - Week 2 Assignment...

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Week 2 Assignment Problem 4-8: The rules concerning stock ownership apply to covered partners: Before pointing out the main question, I want to define who covered partner is. Covered partner is an individual who has attest engagement and has ability to influence the decisions. According to rule 101, these covered partners cannot own the audit client’s stock or other direct investments, in order to sustain its independence. Furthermore, this rule applies to the covered partner’s immediate family as a spouse spousal equivalent or dependent. In this situation, the materiality of the investment matters though. If the materiality of indirect investment is high, it will be considered as violation of rule 101. Moreover, there is another partner issue comes to our attention if the former partner was held out as an associate of the firm or took part in activities that are likely to cause other parties to believe the person is still active in the firm. Therefore, user’s perception of auditor’s independence is very vital for this rule. For example; George is a covered partner of BJ CPA firm in the Virginia office and he owns stocks of Toyota Corporation which is also a client of BJ firm and audited by another covered partner who works at same Virginia office with George. At this point, George is violating the rule 101. The rules concerning stock ownership apply to professional staff: A professional staff member who has direct engagement to attest or becomes a partner to the audit office is prohibited to own stock in an audit client. For example; John is an audit manager of NT CPA firm who owns client’s stock. He got promoted to the covered partner of that firm and still owned the same stock. At this point, he is violating the rule 101. Problem 4-18:
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This note was uploaded on 05/29/2011 for the course ACC 550 taught by Professor Kkkkkk during the Spring '11 term at DeVry Ft. Washington.

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External auditing - assignment 2 - Week 2 Assignment...

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