Depository Accounts, Brokerage Accounts, and Insurance Policies Flashcards
Each of the following broker-dealer relationships impairs auditor independence with respect to a broker-dealer issuer audit client, except:
The auditor has a brokerage account that holds both U.S. securities and assets other than cash or securities.
The auditor has a brokerage account that holds U.S. securities in excess of Securities Investor Protection
Corporation coverage limits.
The auditor has a brokerage account that includes assets other than cash or securities.
The auditor has a cash balance in a brokerage account that is fully covered by the Securities Investor Protection Corporation.
The auditor has a cash balance in a brokerage account that is fully covered by the Securities Investor Protection Corporation.
This answer is correct because an exception to the profession’s independence requirements exists for a cash balance in a brokerage account that is fully insured by an organization such as the Securities Investor Protection Corporation.
Which of the following situations creates an independence problem for Kim?
I. Kim owns an insurance policy that does not contain an investment option and was issued under normal terms, procedures, and requirements.
II. Kim owns an insurance policy with an investment option, and she invested a small amount in the ABC Mutual Fund, even though Kim is a covered member for purposes of ABC, which is an audit client of her firm.
I only.
II only.
Both I and II.
Neither I nor II.
II only.
Under these facts, Kim’s interest in ABC is a direct financial interest, which creates an independence problem.
Member Spencer maintains a brokerage account at TYD Brokers. Spencer was just named to his firm’s audit team to the TYD account. Spencer is therefore deeply concerned about his independence. Which of the following is true?
To be independent, Spencer must close his account at TYD and move to another broker.
To be independent, Spencer need ensure only that TYD renders services to him on the same terms and conditions as to other customers.
To be independent, Spencer need ensure only that any assets he has in the account that are subject to risk of loss are immaterial to his net worth.
To be independent, Spencer must ensure both that TYD renders services to him on the same terms and conditions as to other customers and that any assets he has in the account that are subject to risk of loss are immaterial to his net worth.
To be independent, Spencer must ensure both that TYD renders services to him on the same terms and conditions as to other customers and that any assets he has in the account that are subject to risk of loss are immaterial to his net worth.
Correct! This statement is true—these are the two things that Spencer must ensure in order to maintain this account while being a covered member.
The Patton Accounting Firm and one of its partners, Tilly, have depository accounts at the ABC Bank. ABC has just approached Patton about becoming the bank’s auditor. In which of the following situations would there be an independence problem if Patton became ABC’s auditor?
ABC is in robust financial health.
Tilly’s account is fully insured.
Tilly’s account is not fully insured, but the uninsured amount is not material to her financial situation.
None of the three choices provided.
None of the three choices provided.
Because the three answer choices provided are all incorrect, this is the best answer.
