An auditor's report was appended to the financial statements of Worthmore, Inc. The statements consisted of a balance sheet as of November 30, 19X0 and statements of income and retained earnings for the year then ending. The first two paragraphs of the report contained the wording of the standard unqualified report, and a third paragraph read as follows: The wives of two partners of our firm owned a material investment in the outstanding common stock of Worthmore, Inc. during the fiscal year ending November 30, 19X0. The aforementioned individuals disposed of their holdings of Worthmore, Inc. on December 3, 19X0 in a transaction that did not result in a profit or a loss. This information is included in our report in order to comply with certain disclosure requirements of the Code of Professional Ethics of the American Institute of Certified Public Accountants.

Required:

a. Was the CPA firm of Bell \& Davis independent with respect to the fiscal 19X0 examiration of Worthmore, Inc.'s financial statements? Explain.

b. Do you find Bell \& Davis' auditor's report satisfactory? Explain.

c. Assume that no members of Bell \& Davis or any members of their families held any financial interests in Worthmore, Inc. during 19X0. For each of the following cases, indicate if independence would be lacking on behalf of Bell \& Davis, assuming that Worthmore, Inc. is a profit-seeking enterprise. In each case, explain why independence would or would not be lacking.
1. Two directors of Worthmore, Inc. became partners in the CPA firm of Bell \& Davis on July 1, 19X0, resigning their directorships on that date.
2. During 19X0, the former controller of Worthmore, now a Bell \& Davis partner, was frequently called on for assistance by Worthmore. He made decisions for Worthmore's management regarding fixed asset acquisitions and the company's product marketing mix. In addition, he conducted a computer feasibility study for Worthmore.