Question

    An audit firm is appointed to audit a client that has

    recently engaged in a major merger with a company where the audit firm’s senior partner holds shares. Given professional ethics, how should the firm proceed to comply with independence requirements?
    A Accept audit; disclose the holding Correct Answer Incorrect Answer
    B Continue if partner is not on engagement Correct Answer Incorrect Answer
    C Either dispose of shares or decline the engagement to maintain independence in both fact and appearance Correct Answer Incorrect Answer
    D Accept; file disclaimer Correct Answer Incorrect Answer
    E Accept; but audit only certain departments Correct Answer Incorrect Answer

    Solution

    • Ethical guidelines require auditors to avoid conflicts – holding shares in client compromises independence.

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