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Ethics & Professional Skepticism

In 2005, Jill Smith was an audit senior working for a public accounting firm on the audit engagement of the ABC company. One of Jill’s friends asked her whether she thought that ABC stock was a good investment. She said yes.

Her friend offered to purchase ABC stock on her behalf. Jill provided $5000 for the purchase placed under her friend’s name. She didn’t want her name associated with it because of independence concerns; an auditor is not allowed to own stock in a company that they audit.

Auditors that own stock in companies they audit as considered part owners, and therefore not independent. This may infer with an unbiased audit because they may make decisions in the best interest of the client instead of external users. Even if they do conduct an unbiased audit, if they are stock holders, they may not be perceived as unbiased.

Jill continued working on the ABC company account into 2006, and she failed to comply with the firm’s independence policies by lying on the yearly disclaimer. The public accounting firm launched an internal investigation into the matter based on an anonymous tip and terminated her employment. The PCAOB barred her from serving as an external auditor for a period of at least one year.

  1. What are the unethical actions of the auditor, Jill Smith?
  2. Discuss what her decisions in this case cost her? Was it worth it?
  3. What are some of the current rules in relation to the independence of an auditor?
  4. In this case, compare independence in fact versus independence in appearance.
  5. Do you think that Jill’s punishment was appropriate? Explain your answer.

Your written response paper should be 2 pages in length. Please type your assignment up in a Word document and follow APA format, according to the CSU-Global Guide to Writing and APA (Links to an external site.). Include a title page and reference page. Use two (2) outside academic sources other than the textbook, course materials, or additional information provided as part of the course materials.

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