Darryl West is the partner on the audit engagement for Gold Standard Bank. Darryl was recently promoted to partner. Based on his increase in income, Darryl bought a larger home. Gold Standard Bank had the most competitive mortgage rate, so Darryl obtained his mortgage loan from Gold Standard.

Darryl paid 15% down on the house, received no special rate of interest, and Gold Standard Bank holds the title to the house:

 

• 1) Explain the independence Rule. What is the difference between independence in fact and independence in appearance?

 

• 2) Describe the threat to independence present in the scenario above (if any). Make sure you provide a definition of the threat and then explain how the scenario fits that particular threat.

 

3) Explain the potential problems that might arise from a lack of independence.