Koger Properties, Inc.

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  • Topic: Audit, Stock, Auditor's report
  • Pages : 3 (842 words )
  • Download(s) : 309
  • Published : March 25, 2013
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Facts
Before the merger, Michael Goodbread served as an audit partner in Touche Ross. In December 1988, Goodbread bought 400 shares of common stock from Koger Properties, Inc. After the effective year of the merger in 1989, Koger automatically became an audit client of Deloitte & Touche instead. Also, Goodbread got an identical position in Deloitte & Touche in the same year. In the following year, Goodbread was assigned to be an audit engagement partner in association with Koger’s financial statements for the fiscal year which was ended on March 31, 1990. Goodbread was in charge of all facets of Koger audit. Then Goodbread signed the Koger “audit planning memorandum” on February 21, 1990. Audit planning for the engagement and field work was conducted from that time until June 27, 1990, on which date Goodbread signed the “audit report record” which was a formal completion of the Koger audit. During the operation, Goodbread sold all his 400 shares of Koger common stock on May 10, 1990. Issues

Did Goodbread violate the SEC’s independence rules?
2. Was Goodbread’s equity interest qualified as a material investment? Was it relevant? 3. Under what conditions could Goodbread have later served as the audit engagement partner? Analysis
The SEC strongly claimed that Goodbread violated its independence rules because of the following reasons. Rule 2-01(b) of SEC states, “an accountant will be considered not independent with respect to any person...in which...he, his firm or a member of his firm had, or was committed to acquire, any direct financial interest or any material indirect financial interest...” Clearly, it was a direct financial interest for Goodbread to own 400 shares of Koger common stock in this situation. According to the Code of Professional Conduct, “Independence shall be considered to be impaired if: During the period of the professional engagement a covered member was committed to acquire any direct or material indirect financial interest in the client...
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