Victoria Lilly is a practicing CPA. A long-time audit client has asked Lilly to design and implement a computer-based accounting information system. The fees associated with this opportunity are very attractive. However, Victoria is concerned that she will not be able to maintain objectivity in future financial statement audits if she was responsible for the design and implementation of the client's accounting system. Furthermore, Victoria knows that professional standards require her to remain independent in "fact" and "appearance" from her auditing clients.1. In regards to financial statement audits, what is the difference between independence in "fact" and independence in "appearance"?2. Why do professional standards require that an auditor remain independent of their audit clients?3. Do you believe that Victoria can accept the engagement to develop the client's accounting system and still remain independent? (Support your answer)

Question
Asked Nov 4, 2019

Victoria Lilly is a practicing CPA. A long-time audit client has asked Lilly to design and implement a computer-based accounting information system. The fees associated with this opportunity are very attractive. However, Victoria is concerned that she will not be able to maintain objectivity in future financial statement audits if she was responsible for the design and implementation of the client's accounting system. Furthermore, Victoria knows that professional standards require her to remain independent in "fact" and "appearance" from her auditing clients.
1. In regards to financial statement audits, what is the difference between independence in "fact" and independence in "appearance"?
2. Why do professional standards require that an auditor remain independent of their audit clients?
3. Do you believe that Victoria can accept the engagement to develop the client's accounting system and still remain independent? (Support your answer)

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Step 1

1. Difference between independence in "fact" and independence in "appearance".

The independence in fact means the auditor is able to maintain the balanced attitude or objective point of view on the client throughout the audit process. Independence in appearance means the avoidance of significant facts and circumstances so that a third party viewing the relationship believes that the auditor is independent of the client

Step 2

2. Explain why professional standards require an auditor to remain independent of their audit clients.

When the auditors become dependent on the client, quality of the auditing gets affected. The independence in appearance also gets affected and the third party may feel that the auditing is under the influence of the client ...

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