Question

Dorothy (an audit manager) has been assigned to the audit of Tandem Electric, Inc. Dorothy is concerned that Joanne, a friend from her college days, is on the internal audit staff of Tandem Electric. Dorothy believes she could provide services to this client in an objective manner. Which statement best describes how Dorothy should apply the AICPA conceptual framework approach in this situation?a. Dorothy should refuse to provide services to Tandem Electric because no safeguards would be effective in mitigating the threat(s) to her independence. b. Dorothy should not participate in the audit of Tandem Electric before obtaining a written waiver from her firm's general counsel. c. Dorothy should consider the threats to her independence and whether safeguards may be applied that reduce the threat(s) to an acceptable level. d. Dorothy should document her assessment of independence, which should include a sworn statement from Joanne.

Answer 1

Answer:

c. Dorothy should consider the threats to her independence and whether safeguards may be applied that reduce the threat(s) to an acceptable level.

Explanation:

The best application of the AICPA conceptual framework approach in this scenario is that: Dorothy should consider the threats to her independence and whether safeguards may be applied that reduce the threat(s) to an acceptable level.

The threat of independence in the scenario is not high enough to warrant the resignation of Dorothy from the audit team because her friend is not the Finance Director or person in charge of primary preparation of the financial statements but just a member in the internal audit team, hence the risk to her independence is relatively moderate.

Dorothy already believes that she will be objective, hence she should consider the threats to her independence and whether safeguards may be applied that reduce the threat(s) to an acceptable level.