Question

dorothy (a tax senior associate) has been assigned to the audit of abc toys, inc. dorothy is concerned that joanne, a friend from her neighborhood, is on the accounting staff of abc. concerned about the appearance of her independence, she applies the aicpa conceptual framework and determines that threats to her independence are not significant (that is, threats are at an acceptable level). what other action (if any) does the aicpa code of professional conduct (the code) require dorothy to take?

Answer 1

Dorothy should document the nature of the threats, applied safeguards, and her rationale for concluding the threats are acceptable. Additionally, consulting with her firm's supervisor or the ethics department for confirmation on her decision is recommended according to the AICPA Code of Professional Conduct.

Step-by-step explanation:

When Dorothy, a tax senior associate, applies the AICPA Conceptual Framework and determines that threats to her independence are at an acceptable level due to her relationship with Joanne from the accounting staff of ABC Toys, Inc., the AICPA Code of Professional Conduct requires additional steps. Not only must independence in fact be maintained, but also the appearance of independence. Because the evaluation of threats is subjective, she should document the nature of the threats, the specific safeguards applied to mitigate those threats, and the rationale behind the determination that the threats are at an acceptable level. Furthermore, it may be prudent for Dorothy to discuss the situation with an appropriate person within her firm, such as her supervisor or the ethics/compliance department, to ensure that her determination of the threat level is appropriate and the safeguards are sufficient.

Answer 2

Dorothy must document her assessment of the threat to independence and apply any safeguards, and she should inform an appropriate party within her firm of the situation.

Step-by-step explanation:

The question pertains to Dorothy's concerns about independence in an audit situation due to personal connections with a staff member at the company being audited, ABC Toys, Inc. According to AICPA Code of Professional Conduct, when an individual applies the AICPA's Conceptual Framework and determines that threats to independence are not significant, further action is still required. Dorothy must document her consideration of the significance of any threats to independence and the application of any safeguards that were applied to eliminate or reduce the threat to an acceptable level. Additionally, she should inform an appropriate party within her firm, who is typically someone in a position of higher authority, about the potential threat to her independence.