Reference no: EM132865953

Question - Billy, CPA was promoted to audit manager in a mining company at a large public firm. He started at the firm six years ago and has worked on a number of the same client's audits for multiple years. he prefers being placed on client audits year over year as he believes his knowledge about the client grows each year, resulting in a better audit. Public accounting firms tend to conduct the audit for the same firm by the same auditor previously, as it provides continuity between the firm and the client and often results in a more efficient (less costly) audit as well.

Billy was thrilled to learn that he would be retaining three of his prior audit clients, including what he considers his favorite client (dead pan industries or "DPI"). He has friendships with those in financial reporting including the CFO with whom he has a joint business investment.

The audit planning for DPI's next audit is about to begin. As is common practice with all audits, each member of the audit engagement team is asked to fill out a questionnaire about any type of relationship (personal, business, or financial) they might have (or any other member of the engagement team might have) with the client company, any of their customers, suppliers, employees, or direct family member of their employees. Billy will soon be meeting with the firm's compliance partner assigned to the DPI audit to go through the completed questionnaire.

Directions: the following questions should be answered using a combination of self-awareness and knowledge gained from the threat to compliance with the rules under the AICPA code of professional conduct.

1) Review the threats to compliance. Identify any potential threats that exist based on the facts of the case? Explain how these threats could influence the quality and integrity of her work.

2) Which biases might the identifies threats make Billy more susceptible to and why?

3) Is Billy obligated to discuss his feelings about the DPI with the compliance partner when they meet? Does the compliance partner remove Billy from the audit? Why?

4) The SEC seems to be adopting the position that questions about the independence of auditors and the audit engagement can be made based on a materiality criterion. Would it be a good idea to loosen the independence rules? Why or why not?