Question

Bob martino has a checking account with a local bank. under sec independence rules, which condition would allow him to work on the firm's audit of the bank? • he is not the lead engagement partner or manager on the account. • he charges less than 20 hours to the audit engagement o the amount of money in his account is not material to his net worth. o the balance in his account does not exceed federally insured limits

Answer 1

Bob Martino can work on the audit of a bank where he has a checking account if the balance is not material to his net worth, ensuring his independence in the audit according to SEC rules.

Step-by-step explanation:

The question relates to the extent to which Bob Martino can maintain a professional and objective stance while auditing a bank where he has a personal checking account, under the SEC's independence rules. Among the given conditions, the one that would allow him to work on the firm's audit of the bank without violating independence standards is: that the amount of money in his account is not material to his net worth. This condition ensures that Bob's financial interest in the bank would not be considered significant enough to influence his judgment during the audit. The other options presented, such as not being the lead engagement partner or manager, charging less time to the engagement, or the account balance not exceeding federally insured limits, do not directly relate to the independence requirements set by the SEC regarding material financial interests.

Answer 2

Bob Martino can work on the audit if his account balance at the bank does not exceed federally insured limits. He must also ensure he's not in a significant influential position on the audit, and that his financial relationship is not material to his net worth. Bank supervision bodies like the OCC enforce regulations to maintain financial stability and ensure auditors' independence.

Step-by-step explanation:

Under the SEC independence rules, auditors must maintain independence in fact and appearance when performing an audit on a company. For Bob Martino to work on the firm's audit of the bank, he must comply with these independence requirements. The primary factor that would allow him to work on the audit is if the balance in his account does not exceed federally insured limits. This is because the SEC considers financial relationships, such as a checking account, a potential threat to independence when the amount is material. Additionally, it must be considered whether Bob is not in a position of significant influence over the audit, such as being the lead engagement partner or manager, and that the time he spends on the engagement does not present excessive familiarity with the bank.

When discussing banking operations, it is also relevant to understand how banks manage their assets and liabilities. For example, if Singleton Bank makes a $9 million loan to Hank's Auto Supply, this is recorded as an asset on the bank's balance sheet. This asset generates interest income for the bank. Hank would likely deposit this money in a checking account, such as with First National, which would then see a rise in deposits and reserves. First National is required to hold a percentage of these deposits, typically 10%, as required reserves but can loan out the rest, contributing to the money supply.

Bank supervision, such as that provided by the Office of the Comptroller of the Currency, ensures that banks maintain a positive net worth and moderate risk levels, further protecting the integrity of the financial system and the independence of auditors assessing these institutions.