Case 1-3: Independence
Read the Deloitte Data Trappers Case posted on Blackboard. Complete the following questions we are using for our case assignment: 1. Make an argument for why the audit firm is independent.
B&T is independent because they were indirectly working with a subsidiary that represents less than 2% of Data Trappers business. Once B&T was offered the contract to provide auditing services to Data Trappers, all of their previous bookkeeping up to that point in the current year was destroyed and redone by an internal audit team at Data Trappers. In this case the prospective firm, B&T, severed all ties to the client, Data Trappers, prior to beginning the audit. 2. Make an argument for why the audit firm is not independent.
Section 0.400.21.b of the AICPA Code of Professional Conduct defines independence in appearance as, “Independence in appearance is the avoidance of circumstances that would cause a reasonable and informed third party who has knowledge of all relevant information, including the safeguards applied, to reasonably conclude that the integrity, objectivity, or professional skepticism of a firm or member of the attest engagement team is compromised.” Under this definition, B&T could be seen as lacking independence from the attest client, Data Trappers. B&T previously assisted Data Chops, a subsidiary of Data Trappers, with bookkeeping services. B&T has only been removed from the relationship for less than two years. There also appears to be a conflict of interest because the firm would be auditing financials from previous years that they would have created. They could not audit their own work and maintain their independence. It could appear that B&T saw these conflicts as well because they didn’t sign the engagement letter until after the bookkeeping was destroyed. 3. If you were the SEC, would