Question

Many people believe that a CPA cannot be truly independent when payment of fees is dependent on the management of the client. Explain two approaches that could reduce this appearance of lack of independence.

Answer 1

Answer:

The correct answer is down below please read it well I couldn't summarise it too much to only occupy a few lines because it is too extense.

Explanation:

Options to decrease the aspect of the absence of independence in the first place are that the employment of a committee of audits to choose the auditors is delegated to directors that are not part of management. Also that all the changes and updates on auditor as well as the reasons backing them have to be reported to the SEC or any other regulatory institution. As well as the approval of the CPA firm by the stockholders in the annual meeting.

The second one is that the Sarbanes-Oxley act demands that the audit committee of a public company has to be integrated by independent members and have to cover duties of appointment, termination, and compensation of the audit firm.