MidTerm Exam Take Home Case

MidTerm Exam Take Home Case (80 points)


The Deloitte Foundation, in conjunction with the University of Illinois Center for Professional Responsibility in Business and Society, has created Auditor Independence Education Materials to help students to learn about core concepts, real-world applications, and prevailing rules related to auditor independence.


Please watch the FULL video (3 sections) titled “the Importance of Being Independent” which focuses on the public interest, professional skepticism, financial statements users, and independence in fact and appearance.

  • “Section 1 – Independence 101” (approx. 12 minutes)
  • “Section II – The Public Accounting Profession” (approx. 5 minutes)
  • “Section III – Independence at Work” (approx. 10 minutes)

The video can be found at ……………………………

After watching the video, please respond to the following questions.

1) Suppose you are a banker considering whether to lend money to TS Company. According to its audited financial statements, TS is current on all of its obligations; however, the company has struggled this past year with operating cash flows. The financial statements arguably support a decision to extend the loan, but you are undecided. Frost & Rudin, CPAs gave a “clean” (unqualified) opinion on TS’ financial statements.

  1. How would your decision as a banker be influenced if you learned that Mary Frost, the wife of Tim Frost, the audit partner on the TS Company audit engagement, wholly owned a company of which TS Company was a significant customer (i.e., Mary Frost’s company has a significant business relationship with TS Company)?
  2. What if the facts change and the business relationship between Mary’s company and TS Company was not material or significant? Does that change your answer?
  3. Can you associate this situation to the analogy made in the Video between auditors and baseball umpires?
  4. a) In your opinion, which personal qualities or characteristics in an auditor would most likely increase his or her professional skepticism when performing audit or other attest services? b) As an entry-level person in the profession, how could you develop and/or strengthen these traits in your own character? Do you think society wants you as an auditor to maximize independence?
  5. a) Do you think that the federal government’s adoption of legislation to address financial catastrophes, such as the 1929 market crash and the corporate failures of the early 2000s, have helped to restore public confidence? Why or why not? Does your answer to this question change considering the collapse of the global credit markets in the second half of 2008?
  6. b) In the context of the audit profession, can government and regulators really legislate an auditor’s actions, objectivity, and professional skepticism?
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