Question

Jane, a partner in a cpa firm, borrows $100,000 on a secured note from one of the firm's bank audit clients to build a new dormer on her house. The amount of the loan is material to jane. Jane will not provide any services to the bank and she is unable to influence the engagement. Jane practices in the same office as the lead partner on the bank's audit. Is jane's independence impaired under the aicpa code?

Answer 1

Answer:

Case study

Explanation:

The correct answer to the above question would be :-

Yes, because Jane borrowed the money from an audit client while she was a covered member.

Here we can see that Jane is a partner in a cpa firm,she borrows $100,000 on a secured note from one of the firm's bank audit clients to build a new dormer on her house. The amount of the loan is material to jane. Jane will not provide any services to the bank and she is unable to influence the engagement. Jane practices in the same office as the lead partner on the bank's audit

Answer 2

Yes, Jane's independence is impaired since Jane borrowed the money from the audit client while she was a covered member.

Explanation:

• A covered member is a person  on an audit engagement team, an individual and who is in a position to influence an engagement team, a manager/partner who offers  10 or more hours of non-audit services to an audit client each year, and include another principal, shareholder, or  partner from an office of the audit firm wherein the lead audit partner basically/majorily practices.
• Included in the list of restricted/prohibited financial relationships is a restriction on debtor-creditor relationships, also known as the “loan provision.” Under this restriction, generally an auditor is  not independent when the audit firm or the covered person in the firm/that person’s immediate family members) has any loan to or from (i) an audit client of from the (i) client's directors, officers, of (iii) 10 per cent or greater stakeholder may raise self-interest threats