Mallon Resources Corporation

1. According to Section 101.01 of the AICPA, “A member in public practice shall be independent in the performance of professional services as required by standards promulgated by bodies designated by Council.” In order to avoid conflicts of interest an independent auditor cannot be affiliated with the company he/she is auditing in any way. It is the auditor’s responsibility to ensure that all financial statements are reviewed honestly and fairly and the only way to be able to do that is by being independent from the company you are auditing. Independence is the “cornerstone” of the accounting profession because without independent auditors we would not have trusting investors and most people would not believe the financial statements that are presented. The only reason why the public relies on companies’ financial statements is because they believe that the people who are auditing those statements are independent. Independent auditors protect all investors from fraudulent financial statements so that investors can feel confident that what they see is really what they get [when looking at public company’s financial statements].

2. February 15, 1994 – After the phone call with George Mallon, president and CEO of Mallon Resources, Duane Knight did not immediately inform his superiors of the conversation or potential job offer. Here he is violating Section 101-2.04 of the AICPA because he waited to report this interaction. “When a member of the attest engagement team or an individual in a position to influence the attest engagement intends to seek or discuss potential employment or association with an attest client, or is in receipt of a specific offer of employment from an attest client, independence will be impaired with respect to the client unless the person promptly reports such consideration or offer to an appropriate person in the firm…”

February 17, 1994 – Here Knight already received the offer and still failed to notify the appropriate person in the