At the time of Goodbreads purchase of shares, Koger was an audit client

of Deloitte, Haskins & Sells.

However, after the effective date of the

combination, Koger became an audit client of the new merged entity, Deloitte &
Touche. After the combination of the two firms (December 1989), Goodbread was
assigned to be the audit partner in connection with Deloitte & Touche's audit of
Koger's financial statements for the fiscal year ended March 31, 1990. In that
case, Goodbread had final responsibility within the firm for planning and
supervising the performance of the audit.

Goodbread signed the Koger Audit

Planning Memorandum on February 21, 1990.

Audit planning for the

engagement and/or field work was conducted from that time until June 26, 1990,
on which date Goodbread signed the Audit Report Record, signifying completion
of the Koger audit. Notwithstanding Goodbread's capacity as a partner in the
combined firm of Deloitte & Touche after the combination, and particularly his
final responsibility for the independent audit of Koger beginning on or about
February 21, 1990, Goodbread did not sell his 400 shares of Koger stock until
May 10, 1990. The AICPA Code of Professional Conduct expressly prohibited
Goodbread's Koger stock ownership during the time of the Koger audit. Also, the
SEC charged that Goodbread caused Deloitte & Touche to issue an improper
opinion on Kogers 1990 fi nancial statements. Instead of the unqualified ed
opinion Deloitte & Touche issued on those financial statements, the SEC
maintained that a disclaimer of

opinion had been required given the

circumstances. Following its investigation of the matter, the SEC publicly

censured Goodbread. Kogers stockholders had filed a class-action lawsuit
against Deloitte & Touche. The suit alleged that the 1989 Koger audit performed
by Deloitte, Haskins & Sells and the 1990 Koger audit completed by Deloitte &
Touche were defi cient. Those defi cient audits allegedly contributed to the
subsequent decline in Kogers stock price. A federal jury agreed with the Koger
stockholders and ordered Deloitte to pay the plaintiffs $81.3 million to
compensate them for damages suffered because of the 1989 and 1990 audits.
It

is stated

in

Final

Rule: Revision

of

the

Commission's

Auditor

Independence Requirements of Securities and Exchange Commission under

Investments in Audit Clients, Rule 2-01(c)(1)(i) describes investments that impair
an accountant's independence as to a particular audit client. Paragraph (A)
provides that an accountant is not independent of an audit client if the
accounting firm, any covered person in the firm, or any immediate family

member of any covered person has a "direct investment" -- such as stocks,

bonds, notes, options, or other securities -- in the audit client. As the language of
the rule makes clear, this is not an exclusive list of all ownership interests subject
to the rule. Other than with respect to the scope of persons encompassed by the
rule, paragraph (A) does not represent any substantive change to our rules on
direct investments.
Goodbreads case refers to the fact that he had shares of stock, which is a
direct financial interest, in his possession when he was the audit engagement
partner who supervised the audit of Koger Properties, Inc. The SEC has a strong
case against Goodbread for violating his independence because as it is stated on
the AICPAs Code of Professional conduct, Independence shall be considered to
be impaired if: During the period of the professional engagement a covered
member was committed to acquire any direct or material indirect financial
interest in the client. (ET Section 101: Independence 101-1). Under the General
Standards section of GAAS there is a standard for independence and it says that,
The auditor must maintain independence in mental attitude in all matters
relating to the audit. Because of that, it will lead to questions about whether
Goodbread is really independent due to his ownership in Koger Properties. After
evaluating the standards set before auditors in regards to independence, it is
not hard to see why the SEC took action against Michael Goodbread.
All the fines and accusations needed to be settled first before anything
else. Koger filed for bankruptcy due to the audit report being deficient which also
lead them to file a case against Deloitte & Touche. Goodbread knows at first that
he is one of the shareholders of Koger but then he still accepted the assignment
instead of following the safeguards which is withdrawing or disposing his shares.
Although he sold his shares prior to the event that he signed the audit report
doesnt changed the fact that he saw its financial statements. And also, to avoid
bias in expressing an opinion, they can get the services from a new external and
independent auditor. The external auditor can express an impartial and honest
opinion without bias regarding the adherence to the companys policies and
procedure. He can also asses the effectivity of the internal control of the
company. He can also evaluate the financial standing and stability of the
company. The external auditor can also give a recommendation as to the viability
of the business. This will also avoid reputational risk as to the stability and

viability of the company and its business. Consequently this will entice more
investors to invest in the company
Due to his actions, Mr. Goodbread will have to face his consequences
based on what the boards penal provision on RA 9298 that any person caught
violating any of the sections in the RA 9298 shall be given a fine of not less than
50,000 or imprisonment of not more than 2 years or both.