Loans, Leases, and Business Relationships

Question 1

Name the three safeguards necessary to ensure that joint participation with an attest client in a joint venture will not impair independence

Answer 1

1. )Separate agreements govern participation of the firm and the client.
2. )Neither assumes responsibilities for the other’s activities or results.
3. )Neither has the authority to act as the other’s agent or representative.

Question 2

From which entities should a covered member generally not borrow?

Answer 2

An attest client, its officers and directors, or any 10% shareholder

Question 3

Name two types of loans a covered member may have without impairing independence

Answer 3

Any of these:

1. )Auto loans collateralized by the vehicle
2. )Loans fully collateralized by the cash surrender value of insurance policy
3. )Passbook or similar collateralized loans
4. )Credit card or overdraft amounts up to $10,000

Question 4

Which kind of real estate lease is most likely to lead to an independence problem?

Answer 4

Capital leases