Koger Properties, Inc
The Securities and Exchange Commission (SEC) claims that Michael Goodbread had violated independence rules set forth by the American Institute of CPAs (AICPA) Professional Code of Conduct and generally accepted auditing standards (GAAS). AICPAs Professional Code of Conduct considers an impairment of independence if during the engagement an auditor has “any direct or material indirect interest in the client.” (American Institute of Certified Public Accountants, 1988) Because Goodbread held shares of Kroger common stock and carried on with the audit assignment of Kroger, he violated the AICPAs professional code of conduct in relation to independence. To comply with the rules of conduct, Goodbread should have disclosed to his employer, Deloitte & Touché, that he was financially invested in Kroger. The other option Goodbread had was to terminate the relationship with Kroger by selling his stock immediately. The GAAS auditing standard on independence was also violated by Goodbread connection to Kroger. GAAS general standards require the auditor to maintain independence in mental attitude in all areas of the assignment. They also require that the auditor complies with the AICPA Code of Professional Conduct. (Generally Accepted Auditing Standards, 2001) The SEC aims to protect investors by ensuring financial statements are reliable which is why they require independence. The SEC recognized that Goodbread violated independence rules by being invested in Kroger at the same time being an audit engagement partner for the assignment.
Materiality is defined by the FASB as a “concept that relates to the qualitative characteristics, especially relevance and reliability.” (Financial Accounting Standards Board, 2008) They further discuss a scenario where an investor might not disclose amounts that are small and do not make a difference. Financial Accounting Standards Board (FASB) requires an investor to document at acquisition the...
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