Audit Independence

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Auditor Independence. This case can also be used to discuss auditor independence. Auditor independence has received significant attention in the U.S. Walter Schuetze, then Chief Accountant to the Securities and Exchange Commission (SEC), wrote a pointed commentary, “A Mountain or a Molehill?” Several other SEC speeches and commentaries followed until November 2000 when the SEC adopted new rules governing the auditor’s independence. The amendments modernize the Commission’s rules for determining whether an auditor is independent in light of investments by auditors or their family members in audit clients, employment relationships between auditors or their family members and audit clients, and the scope of services provided by audit firms to their audit clients. The amendments also identify certain non-audit services that, if provided by an auditor to public company audit clients, impair the auditor's independence. Finally, the new rules identify non-audit services that might impair an auditor’s independence. For all annual proxy statements filed after February 5, 2001, a public company is required to disclose information related to the non-audit services provided by the auditor during the most recent fiscal year. In 2003 Title II of the Sarbanes-Oxley Act required additional independence restrictions but left the final determinations and ruling regarding restrictions to the SEC and the PCAOB. For example in July 2005 the PCAOB issued Release No. 2005-014, “Ethics and Independence Rules Concerning Independence, Tax Services, and Contingent Fees.”

In 2001 the AICPA revised their ethics rulings and interpretations related to auditor independence to conform, for the most part, with the new SEC rules.

Question 1
(a)Why would a company want to hire a member of its external audit team? (b)If the client has hired former auditors, would this affect the independence of the existing external auditors? (c)How did the Sarbanes '' Oxley Act of 2002...
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