Professional Ethics-Scenario # 3

[KayPee]

A partner of PKF & Partners is a childhood friend of the client, for whom he has conducted review engagements for 15 years. The client is the sole share-holder of the client company. Independence rules being a hot topic these days, the partner wonders if he is breaching them, especially as he plays golf and dines with this client two or three times a year. Is he at fault?

[limit_to_infinity]

1 personal relation b/w auditor and client sole shareholder
2 long term relationship b/w client and firm [as well as ATM]


YES he is at fault

[Suze]

The partner being friends since childhood with the client can now be classed as "family" and being an auditor for a relation is negative.

Social activities with the client which is playing golf and dining with the client.

The partner is at fault but he should have known this from the inception and not accept the position.

[Camille]

The auditor should not accept an engagement if it maybe perceived that his independence will be threatened. In this situation based on the long-standing continuous friendship with the client, the assignment should not be accepted.

[Kelly]

The Partner has conducted review engagements, and as he is a childhood friend of the client and currently sees him on a social basis then Yes he is at fault, his independence is at risk, the main threat being self interest threat.

To overcome this the Partner must either decline to carry out further engagements, or have the work done reviewed by an independent person.:yes:

[ManOo]

Independence is at risk due to the following reasons,

-Being a childhood friend (considered as family influence)
-Having been a Reviewer for a longer time period
-Being a sole shareholder of the Client Company
-Participating in Social Gathering (as he plays golf and dines with this client)...dissolve the "to be seen Independent" rule.

So Yes Partner is at fault . He should not accept the review engagement at inception and for now he should decline any further engagements.

[GEORGE]

The partner should decline any further engagement, since PKF is a partner firm other members of the partner could be assign to the client, should that be done, the partner should in no way have access to data or information on the reviewe of the client.

[KayPee]

Model Answer


No. Because the client company is not publicly traded, partner rotation is not required. There is, however, a familiarity threat. Although the situation is not included in the prohibitions, it is possible for the member’s objectivity to be impaired or be perceived as such. Therefore, applying safeguards to reduce the threat seems appropriate. In practice, this type of situation is often resolved by having another partner in the firm review the file, at least where contentious issues are concerned, or by rotating partners. Occasionally dining with a client for business purposes does not necessarily constitute a threat to independence, unless the partner considers that this impairs or may be perceived as impairing his professional judgment or objectivity.