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Williams, who owns 18% of First Mfg. Co., has filed a lawsuit against the management of First Mfg., but not against its auditors. Williams claims

Williams, who owns 18% of First Mfg. Co., has filed a lawsuit against the management of First Mfg., but not against its auditors. Williams claims that, while unit costs used to value the inventory are not at issue, management reported at December 31 three times the number of physical units in inventory than actually existed. Jones, partner in charge of the First Mfg. audit, is called on to testify about First Mfg. inventory. He testifies before the trier of facts both to his audit staff's observation of the inventory taken by First Mfg's personnel on December 31, and to his audit staff's test counts of more than 50% of the units in inventory. As he finishes his testimony, the trier of facts asks if, in Jones' opinion, First Mfg.'s procedures for controlling inventory are adequate. Jones then provided his opinion on First Mfg's controls over inventory. What effect would both parts of Jones' testimony have on his firm's independence with First Mg.? I. Jones testimony on the observation of inventory impairs independence I. Jones' testimony on his opinion of First Mfg's inventory controls impairs independence. IlI. Jones' testimony on the observation of inventory does NOT impair independence. IV. Jones' testimony on his opinion of First Mfg's inventory controls does NOT impair independence.

  1. I and II
  2. I and III
  3. II and III
  4. III&IV

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