Question
Marie Janes encounters the following situations in doing the audit of a large auto dealership. Janes is not a partner. 1. The sales manager tells
Marie Janes encounters the following situations in doing the audit of a large auto dealership. Janes is not a partner.
1. | The sales manager tells her that there is a sale (at a substantial discount) on new cars that is limited to long-established customers of the dealership. Because her firm has been doing the audit for several years, the sales manager has decided that Janes should also be eligible for the discount. |
2. | The auto dealership has an executive lunchroom that is available free to employees above a certain level. The controller informs Janes that she can also eat there any time. |
3. | Janes is invited to and attends the company's annual holiday party. When presents are handed out, she is surprised to find her name included. The present has a value of approximately $200. |
Describe how each of the situations might threaten Janes' independence from the auto dealership.
First, identify whether or not each situation represents a potential threat to Janes' independence. Then, if the situation does represent a potential threat to independece, identify specific threat(s)
Situation | Potential Threat to Independence? Y/N | How might the situation be considered a threat to independence? |
1 | Yes | |
2 | Yes | |
3 | Yes |
(Two potential answers per situation.)
a. Janes appears to be accepting payment of the audit fee
b. Janes is not consulting with the audit committee
c. Janes may be favorably disposed toward the client
d. Some may perceive a conflict of ownership interest
e. Some may perceive a lack of independence
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