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12 Oct 2018

Arthur Anderson: Why should an auditor make decisions in the public interest rather than in the interest of management or current shareholders

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Nelly Stracke
Nelly StrackeLv2
14 Oct 2018

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YOUCPA is a regional CPA firm engaged in public audit work ofsmall- and medium-size firms in the Midwest. The YOUCPA firm hastheir main office in Chicago, Illinois, and regional offices inMinneapolis, Minnesota and Indianapolis, Indiana. The managingpartners are located in Chicago. YOUCPA also provides taxpreparation and information consulting to customers and is anapproved PCOAB audit firm.

Your client, the publicly traded Fresno Freezer Corporation, islocated in Elgin, Illinois, a small city located outside ofChicago. The client has the main plant there and has distributioncenters in Indianapolis and Minneapolis.

The Fresno Freezer Corporation has contracted with YOUCPA for anaudit. During the audit, the audit team has asked you to determineif everyone on the engagement team is independent.

The following individuals are on the engagement team and on themanagement of YOUCPA:

Sarah Ball, Senior Partner, YOUCPA

Bill Davis, Managing Partner, YOUCPA

David Youssef, Manager of Taxation Services, YOUCPA

Yewel Faraday, Manager of Information Consulting, YOUCPA

Frank Bell, Supervisor of Auditing assigned to Client,YOUCPA

Beth Wright, Supervisor of Auditing assigned to Client,YOUCPA

Wilbur Singation, Auditor, YOUCPA

Sam Martin, Auditor, YOUCPA

Mary Franks, Auditor, YOUCPA

Phil Cole, Auditor, YOUCPA

Callie Smart, Auditor, YOUCPA

You, Auditor, YOUCPA

Background of each individual:

The following individuals are on the engagement team and on themanagement of YOUCPA:

Sarah Ball, Senior Partner, YOUCPA

Manages the YOUCPA partnership

No financial interest in client

No relative with firm

No past history working with client in a direct manner (meaningworking for the client as an employee)

Bill Davis, Managing Partner, YOUCPA

Managing the audit of the client

No financial interest in the client

No relative with the firm

No past history working with the client in a direct manner

David Youssef, Manager of Taxation Services, YOUCPA

Manages the taxation services for the accounting firm

No financial interest in the client

No relative with the firm

No past history working with the client in a direct manner

Yewel Faraday, Manager of Information Consulting, YOUCPA

Manages the information consulting for the accounting firm

Yewel has no financial interest in the client

No relative with the client in a direct manner

Frank Bell, Supervisor of Auditing assigned to Client,YOUCPA

Will supervise the audit at the main plant

No financial interest in the client

Wife works with client as a worker in the plant

Wife has no control or influence on the impact or creation ofthe financial statements

Wife has been working there for 20 years

Beth Wright, Supervisor of Auditing assigned to Client,YOUCPA

Will be auditing the distribution locations

No financial interest directly in the client

Does own a mutual fund that is invested in the client

Mutual fund estimated value is 0.01% of the total value of thestock market value of the client

Mutual fund makes all decisions on who, when, and how much theyinvest in corporations

Total investment in the mutual fund is $1,000

Wilbur Singation, Auditor, YOUCPA

No financial interest in the client

No relative with the client

No past history working with the client in a direct manner

Has contacted a head hunter looking for a new, betterposition

Head hunter has discussed his qualifications with many firms,discreetly

Wilbur does not know the firms or the content of thosediscussions

Sam Martin, Auditor, YOUCPA

No financial interest in the client

Cousin works with the client in a role as the mail distributionperson

Cousin handles the mail

Conversation with cousin has been rough in the past over a smalldebt the cousin still will not pay

The amount of the debt is $500

Mary Franks, Auditor, YOUCPA

No financial interest in the client

No relative with the client

No past history working with the client in a direct manner

Phil Cole, Auditor, YOUCPA

Recently joined the team

Used to work at the client less than a year ago

Was responsible for financial planning and control

Left to experience the auditing profession

Callie Smart, Auditor, YOUCPA

Just graduated from a prestigious online university inIllinois

No relative or any direct relationship to the client

No investment in the client

You, Auditor, YOUCPA

No investment in the client

No past working relationship with the client in a directmanner

No relatives working at the client

Assignment Guidelines:

For each individual on the engagement team and on the managementof YOUCPA, complete the following:

Determine if they are or are not independent.

Explain your reasoning.

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