Question

Sharon Gallagher, Josh Thomas, and Jo Wadley work for the audit firm W&S Partners. Sharon is an audit manager, Josh is an audit senior, and Jo is an audit partner. They meet to discuss the results of a survey of other offices of W&S Partners, as well as their own office. The survey was directed toward determining if W&S Partners had any independence problems with respect to a new prospective client, Cloud 9 Inc. Based on the survey, they learn the following:

i. Jo Wadley and David Collier (Cloud 9's CFO) both serve on the board of directors of the local chapter of Special Olympics.

ii. A tax senior in another office has a sister that consults with Cloud 9 on shoe design. Cloud 9 is her largest client.

iii. Fifteen employees of W&S Partners, ranging from partners to entry-level staff, own shares in retailers that sell Cloud 9 shoes.

iv. A survey shows that 23% of professional staff working for W&S Partners have purchased Cloud 9 shoes in the past.

Required

Evaluate each of the items above and their impact on the independence of W&S Partners with respect to Cloud 9. If relevant, list any additional actions you might take before making your independence recommendation to Jo Wadley.

Answer 1

Sharon Gallagher, Josh Thomas, and Jo Wadley work for the audit firm W&S Partners and need to evaluate different factors that may affect the independence of W&S Partners concerning Cloud 9. They would need to consider the relationships between individuals, conflicts of interest, and financial ties, such as share ownership or personal purchases. Additional actions that could be taken include reviewing the code of ethics, evaluating conflicts of interest, and providing further training on independence and professional skepticism.

Step-by-step explanation:

The items listed above have different impacts on the independence of W&S Partners concerning Cloud 9:

1. Jo Wadley and David Collier serving on the board of directors of the local chapter of Special Olympics could affect the independence as it creates a close relationship with the client and potential bias.
2. A tax senior's sister consulting with Cloud 9 on shoe design and it being her largest client may create a conflict of interest and compromise independence.
3. Fifteen employees owning shares in retailers that sell Cloud 9 shoes could also compromise independence as their financial interests align with the success of the client.
4. The survey showing 23% of professional staff purchasing Cloud 9 shoes raises a concern about objectivity and independence.

Before making an independence recommendation to Jo Wadley, additional actions that could be taken include:

• Conducting a thorough review of the code of ethics and policies related to independence to ensure compliance
• Evaluating and addressing any potential conflicts of interest
• Implementing further training on independence and professional skepticism