Sharifah Piang May 2, 2019

Audit 411 Prof. Ellis

Case 1

Firm’s Independence has not been impaired

Since Don Moore and Joan Scott are not married to each other and they were only living
together even if they treat each other as spouse, there is no commitment in marriage so the
relationship cannot be considered a spousal relationship. Since there’s no spousal relationship exist
there are no community property rights. The interest of Joan Scott will be considered as his own
interest to determine the firm’s independence. Joan Scott is a stockbroker and the stocks she owns
for the attest company is not material to her net worth and she owns less of the stock of the company.
Therefore, Don Moore as a partner of the firm is considered independent and the firm’s independence
is not impaired.

Firm’s Independence has been impaired

Joan Scott is a spouse equivalent to Don Moore even if they are not married. The
independence of the firm is determined based on the interest of Scott and Moore. Since Don Moore
is a partner of the firm and Joan Scott owns shares of the firm. The firm therefore is impaired because
having shares of one of the audit clients is like owning the share of the client and to conduct audit
service for the client is impairing the firm’s independence.

Personal Opinion

On my opinion the firm’s independence is impaired because Joan Scott acquired shares of the
firm even if the shares she owned are not material to her net worth and Don Moore is a partner to
that audit firm. My suggestion for the problem to be solved is for Joan Scott not to acquire shares of
a firm on which his spousal equivalent is a partner.
Case 2

Firm’s Independence has not been impaired

Mary Reed is an auditor and has no managerial responsibilities and is not a covered member
of the firm and has no direct interest to the firm then the firms independence is not impaired, even if
her husband always resented her career and uses community property to acquire one share of
common stock in each of the publicly owned companies audited in which Mary works. The investment
is not under Mary’s direct control and is considered an indirect investment.

Firm’s Independence has been impaired

For the firm’s independence to be impaired if Mary participates in the engagement. If Mary is
still married to her husband and her husband acquired one share of common stock of each of the
companies she’s auditing then that’s the time the firm’s independence is impaired.

Personal Opinion

On my opinion it is unlikely that the firm’s independence be impaired because Mary and her
husband are separated. Even if her husband acquires each share of every company Mary works in,
there is no direct interest that could make the independence impaired.