Other Associations and Relationships

Question 1

IF a CM belongs to a Social Club which is an attest client, is there an issue with independence?

Answer 1

No, as long as it is primarily a social matter

Question 2

IF a CM belongs to a trade association which is an attest client, is there an issue with independence?

Answer 2

Independence is impaired if:

• A CM belongs to a trade association that is a attest client
• A POPE of a firm is employed by or associated with a trade association in an important role (director, trustee, etc)

Question 3

If a CM buys an interest in a condominium which is an attest client, is there an independence issue?

Answer 3

No problem as long as the following safeguards are met:

1) Association performs similar functions to local governments, public safety, road maintenance, and utilities
2) The CM annual assessment is not material to either the association or to the auditor
3) Liquidation of association or sale of assets would result in a distribution to the auditor
4) Associations creditor would have legal recourse against the CM if the association became insolvent

Question 4

If a CM is a member of a credit union, is there an independence issue?

Answer 4

Eligible to join because of provision of professional services (i.e. the only reason you were let in because you were their auditor, that’s an issue)

Question 5

What are the rules for gifts and how they impair independence?

Answer 5

Impaired if the firm, a team member, or a PTI accepts a gift from an attest client, unless the value is CLEARLY INSIGNIFICANT to the receipt

Question 6

What are the rules for entertainment and how they impact independence?

Answer 6

May be accepted AS LONG as it is REASONABLE IN THE CIRCUMSTANCE

• The nature of the gift
• The occasion giving rise to the gift
• The cost or value of the gift
• The nature, frequency, and value of other gifts and entertainment

Question 7

Actual or threatened litigation may impact independence, provide explanation:

Answer 7

General Rule: If the client sues the firm or visa versa in MATERIAL ADVERSE INTEREST, there is a big problem and impair independence if:

• An attest client’s present management sues the firm alleging deficiencies in audit work
• A CM commences litigation against an attest client present management alleging fraud or deceit

A minor dispute does not impair independence.
Lawsuits by shareholders do not impair independence unless there are cross claims between you and the client.

Question 8

After litigation is settled, can you go back to being the clients auditor?

Answer 8

Once the litigation is settled, YOU CAN go back to being the auditor