Mutual Funds and Retirement Plans Flashcards
Which of the following investments in mutual funds would not create an independence problem for auditor Gomez?
Gomez owns a few shares of the Wensleydale Mutual Fund (WMF) and is on his firm’s audit team for WMF.
Gomez owns 3% of the shares of a diversified mutual fund that owns stock in Minotaur Corporation. Gomez is on his firm’s audit team for Minotaur.
Gomez owns 20% of the shares of a diversified mutual fund that owns stock in Faber Corporation. Gomez is on his firm’s audit team for Faber.
Gomez owns 30% of the shares of an undiversified mutual fund that owns stock in Woodson Corporation. Gomez is on his firm’s audit team for Woodson.
Gomez owns 3% of the shares of a diversified mutual fund that owns stock in Minotaur Corporation. Gomez is on his firm’s audit team for Minotaur.
Correct! A covered member who owns less than 5% of a diversified mutual fund has an immaterial and indirect interest in the underlying securities and therefore independence is not impaired.
In which of the following situations would these auditors for PriceCoopersHouse (PCH) who are on the audit team for Mulholland Corporation, not have an independence problem?
Tomasina participates in a retirement fund sponsored by a former employer. Although Tomasina has no desire or ability to direct the fund’s investments, she has learned that it has purchased a small number of Mulholland Corporation shares.
Tomasina participates in a retirement fund sponsored by a former employer. Although Tomasina has no desire or ability to direct the fund’s investments, she has learned that it has purchased a small number of Mulholland Corporation shares. Tomasina’s husband is on the fund’s investment committee.
Edward is trustee of a retirement plan sponsored by a social organization that he joined—the Rotary Notary Club (RNC). RNC’s plan has recently purchased a significant number of shares of Mulholland.
Edward participates in a retirement plan sponsored by a social organization that he joined—RNC. He is able to direct some of his money that is in the plan to specific investments and he chose to buy some Mulholland shares.
Tomasina participates in a retirement fund sponsored by a former employer. Although Tomasina has no desire or ability to direct the fund’s investments, she has learned that it has purchased a small number of Mulholland Corporation shares.
Correct! With no ability to direct the fund’s investments and the small amount of shares involved, this is an immaterial and indirect financial interest and should cause no independence concerns.
Which of the following creates an independence problem?
I. Sally participates in her firm’s retirement plan, which allows her to select which companies’ stocks go into her portfolio. Sally selects a small amount of ABC Co. stock, even though she is on her firm’s audit team for ABC.
II. Although Sally has not selected ABC Co. stock for her retirement plan’s portfolio, her spouse, Joe, has done so.
I only.
II only.
Both I and II.
Neither I nor II.
Both I and II.
Both of these situations create an independence problem. The ability of Sally and Joe to self-direct their investments makes their interests in ABC direct. Therefore, there is an independence problem even if the investments are immaterial.
Jo is a member in public practice who is very wealthy and has no individual investments that are material to her. Which of the following investments would impair Jo’s independence?
Jo owns 3% of a diversified mutual fund and is on her firm’s attest team for that fund.
Jo owns 4% of a diversified mutual fund and is on her firm’s attest team for ABC Co., whose shares are in the mutual fund’s portfolio of stocks.
Jo owns 2% of an undiversified mutual fund that has ABC Co. stock in its portfolio (and Jo is on her firm’s attest team for ABC).
All three of the choices provided.
Jo owns 3% of a diversified mutual fund and is on her firm’s attest team for that fund.
There would be an impairment here, for Jo owns a direct though immaterial interest in the audit client: the mutual fund.
