Dorothy (an audit manager) has been assigned to the audit of Tandem Electric, Inc. Dorothy is concerned that Joanne, a friend from her college days, is on the internal audit staff of Tandem Electric. Dorothy believes she could provide services to this client in an objective manner. Which statement best describes how Dorothy should apply the AICPA conceptual framework approach in this situation?a. Dorothy should refuse to provide services to Tandem Electric because no safeguards would be effective in mitigating the threat(s) to her independence. b. Dorothy should not participate in the audit of Tandem Electric before obtaining a written waiver from her firm's general counsel. c. Dorothy should consider the threats to her independence and whether safeguards may be applied that reduce the threat(s) to an acceptable level. d. Dorothy should document her assessment of independence, which should include a sworn statement from Joanne.

The best application of the AICPA conceptual framework approach in this scenario is that: Dorothy should consider the threats to her independence and whether safeguards may be applied that reduce the threat(s) to an acceptable level.

The threat of independence in the scenario is not high enough to warrant the resignation of Dorothy from the audit team because her friend is not the Finance Director or person in charge of primary preparation of the financial statements but just a member in the internal audit team, hence the risk to her independence is relatively moderate.

Dorothy already believes that she will be objective, hence she should consider the threats to her independence and whether safeguards may be applied that reduce the threat(s) to an acceptable level.

codiepienagoya codiepienagoya · Answer 2 · 2021-11-24T12:13:35+01:00

It's an application of AICPA proposed theoretical approach in this caseis that: Dorothy should assess potential challenges to their freedom and whether protections can be put in place to limit the threat to the an appropriate standard.

Dorothy has no reason to just not engage in the audit because Joanne is not involved in company governance, but rather is a part of the firm's internal audit team.
Second, Joanne is not part of Dorothy's family; rather, she is indeed a school buddy, so there is no reason for her not to participate or to acquire a written release from the firm's legal advisor.
Dorothy will examine any possible risks to her autonomy and find any safeguards that may be available to decrease these risks to an acceptable level.

Therefore, the final answer is "Option C".

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