Auditing & Ethics

Topics: Financial audit, Auditing, Internal control Pages: 3 (997 words) Published: October 1, 2008
Koger Properties, Inc.
The SEC has a strong case against Goodbread for violating his independence because as it is stated on the AICPA’s website, “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.” ( 101-1). In Goodbread’s case this refers to the fact that he had shares of stock (direct financial interest) in his possession when he was the audit engagement partner who oversaw the audit of Koger Properties, Inc. Under the Generally Accepted Auditing Standards (GAAS) there are three sections, General Standards, Standards of Fieldwork, and Standards of Reporting. Under the General Standards section of GAAS there is a specific standard for independence and it reads, “The auditor must maintain independence in mental attitude in all matters relating to the audit.” (Messier, 42) Often times a distinction will be made between independence in fact and independence in appearance. What this means is that an auditor must not only be independent in fact (objectively), but must also avoid actions that may appear to affect independence. The fact that Goodbread owned stock in Koger, no matter how many shares, still affects the appearance of his independence relating to the audit of that company. Third parties, such as potential buyers of Koger stock, cannot observe whether Goodbread is acting objectively during the audit. Because of that, it will lead to questions about whether Goodbread is really independent due to his partial ownership in Koger Properties. (Messier, 42) After evaluating the codes and standards set before auditors in regards to independence, it is not hard to see why the SEC took action against Michael Goodbread. 2.)

To Michael Goodbread personally I believe that the investment was of material interest. Even though it states that it is not uncommon for partners to make six digit...
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