Chapter 19, Problem 19.29P

To determine

Concept Introduction:

Codes of professional conducts include a list of principles and regulations which define the set of standards of ethic and professional behavior that is required for each member of the entity. It gives the general outline for the institute and its members, how they should behave and perform.

To discuss:Whether the situation is violated or not.

American Institute of Certified Public Accountants (AICPA): American institute of certified public accountant is a national professional organization that set the ethical principles for the institution and professions. AICPA also have rules for the auditor independence that describe the client as the result of the action or relationship. The following situations describe such actions that violate the independence rule or not.

1. YES, it violates the independence as dependent parents come under the immediate family and a cover member is not independent if they have direct financial interest in the client.
2. NO, it does not violate the independence because if a covered member or member of immediate family is in a key position of an entity, then the covered member is not independent of an audit engagement.
3. YES, it violates the independence as the close relative party is aware about the material investment. The covered member cannot hold the financial interest if the financial interest is indirect and investment is material.
4. NO, it does not violate the independence as the financial interest is indirect and covered members may not be aware about investment then they can hold the financial interest.