Which of (1) through (7) in part e. are prohibited by the AICPA Code of Professional Conduct? Which are prohibited by the Sarbanes–Oxley Act or the SEC?

The following relate to auditors’ independence:
a. Why is independence so essential for auditors?
b. Compare the importance of independence of CPAs with that of other professionals,
such as attorneys.
c. Explain the difference between independence in appearance and independence of mind.
d. Assume that a partner of a CPA firm owns two shares of stock of a large audit client
on which he serves as the engagement partner. The ownership is an insignificant part
of his total wealth.
(1) Has he violated the AICPA Code of Professional Conduct?
(2) Explain whether the ownership is likely to affect the partner’s independence of mind.
(3) Explain the reason for the strict requirements about stock ownership in the rules
of conduct.
e. Discuss how each of the following could affect independence of mind and indepen-
dence in appearance, and evaluate the social consequence of prohibiting auditors
from doing each one:
(1) Having the annual audit performed by the same CPA firm for 10 years in a row
(2) Owning stock in a client company
(3) Having bookkeeping services for an audit client performed by the same person
who does the audit
(4) Having a spouse who is the chief financial officer of a client company
(5) Having management select the CPA firm
(6) Recommending adjusting entries to the client’s financial statements and prepar-
ing financial statements, including footnotes, for the client
(7) Providing valuation services on complex financial instruments for an audit
client performed by individuals in a department that is separate from the audit
department
f. Which of (1) through (7) in part e. are prohibited by the AICPA Code of Professional
Conduct? Which are prohibited by the Sarbanes–Oxley Act or the SEC?

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