Week 2 Homework Solutions - 4-8 The rules concerning stock...

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4-8 The rules concerning stock ownership by partners and professional staff: A partner in the office of the partner responsible for an audit engagement cannot own stock in that audit client. A partner can own stock in an audit client, as long as (1) he or she cannot influence the audit engagement and (2) he or she is not in the same office as the partner responsible for the audit engagement. A professional staff member cannot own stock in an audit client if he or she is assigned to the engagement or if he or she becomes a partner in the office of the partner responsible for the audit engagement. A professional staff member can own stock in a firm’s audit client as long as he or she does not participate in the audit engagement. Partner violation : A partner in the San Francisco office owns one share of stock of a client whose audit is conducted by a different partner in the San Francisco office. Professional staff violation : An audit manager owns stock in a client whose audit is performed by the office where the audit manager works. The manager is promoted to partner mid-year. As soon as the manager becomes a partner, there is a violation of Rule 101. 4-18 a. (1) b. (3) c. (1) 4-19 a. (1) b. (3) c. (3)
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Discussion Questions And Problems 4-20 Service Violation? a. Providing bookkeeping services to a public company. The services were pre-approved by the audit committee of the company. Yes b. Providing internal audit services to a public company that is not an audit client. No c. Designing and implementing a financial information system for a private company. No d. Recommending a tax shelter to a client that is publicly held. The services were pre-approved by the audit committee. No * e. Providing internal audit services to a public company client with the pre-approval of the audit committee. Yes f. Providing bookkeeping services to an audit client that is a private company. No * Recommending tax shelters is not prohibited, but has the potential to impair independence. 4-21 a. Rule 101 - Independence. No violation. John Brown is not a partner nor is he assigned to the engagement team for the audit client. b. Rule 102 - Integrity and Objectivity. Violation. This rule states that in tax practice, a member may resolve doubt in favor of his or her client as long as there is reasonable support for his or her position. In the example case, the client has provided no support for the unusual deductions. Phyllis Allen has violated Rule 102 by not requiring reasonable support for the deductions.
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Week 2 Homework Solutions - 4-8 The rules concerning stock...

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