The rules of the AICPA Code state that auditors should be independent, both in fact and in appearance. Auditor’s independence is considered to be the strongest cornerstone of the profession of the auditor, as he/she acts in the interests of the Public Trust Foundation. This independence of the auditors is what ensures that the quality audits are performed and that they contribute fully to users of the financial statements. The Code establishes all the auditors’ independence standards, objectivity and integrity, and all their responsibilities to all their clients, in terms of their action towards the accounting specialists. Auditor’s independence is general independence that ensures that the auditor is safe from all the parties, whose main interests might get harmed by the audit report results. Auditors are supposed to be independent in appearance, which is called a perceived independence, and also independent in fact, which is called a real independence (Dunn, 1996).
An auditor, who is independent in fact, is considered to have an ability to be able to make impartial and just decisions. These decisions should be independent even though the perceived independence is absent or have to be taken under state or situations, which are very compromising. This is very difficult to determine whether the auditor is independent in fact, since it is very hard to measure the personal integrity and mental attitude of the auditor (Dunn, 1996). The independence in appearance, which is also known as the Perceived independence, is the situation where the auditor is forced to act in a way other than acting independently. This, in most cases, adds some credibility to the report of the audit. This reduces the possibility that the auditor is not acting independently.
I think that the independence rules were violated in this case. When Yossi was requested to hand in the financial results, he should not consider the family matters. These personal concerns are the reasons as to why he seems to be very angry with his wife, because he does not want to implicate her interests in his audit report. This is evident as when he went home that evening he never said even a word to his wife. He had looked through all the financial reports, concerning the advertisement costs that were required, and got to know that his wife had given consent to the capitalization of the advertisement costs.
Yossi knows very well about his duties, and independence rules. This brings anger in him about his wife’s actions and her decision. Under these circumstances, he still should make his own independent decision without being influenced by his marriage. It is one of the biggest obstacles, which made him very stressed to a point that he did not want to speak to his wife about the difficult situation that he was facing. Yossi knew that he had to overcome all the compromising situations, which he was to encounter as a professional auditor. Some of these situations required a very tough decision (Dunn, 1996).Want an expert to write a paper for you Talk to an operator now
The rules of accounting state that a cost should be expensed and not capitalized. Capitalization is delaying the recognition of the business expenses by recording the business expenses as being a long-term asset (Elliot, & Elliot, 2004). This capitalization of expenses is usually very beneficial to the business, as the business is able to acquire new assets through the use of the long term assets. This, in turn, can cause the cost to be spread over a certain period of time, like in the case of the Campus Sports and Fitness Health Club (Kieso, Weygandt, & Terry, 2001).
The Club did not account properly for the advertising costs. They decided to write off all the advertising costs over a two-year membership period. Dina Caufman, who is the official chief accounting officer of the Club, made the final decision to capitalize the advertising costs after having been ordered to account for the advertisement costs from expensing to capitalization. Dina knew very well that these advertisement costs were not to be capitalized; however, she went ahead and approved the capitalization of the costs for the benefit of the Club, which wished to expand its operations throughout the Philadelphia state.
Yossi Caufman, in this case, is an internal auditor of the Sports Club. The auditor’s independence states that an auditor has to be independent in fact and also in appearance. In this case, Yossi was not independent in fact. There was a compromising situation where he had the matter of his wife at hand. The wife of Yossi was the Chief Accountant of the Sports Club, which showed that he had some self-interest. This situation was making him not able to make independent decisions when it came to the auditing of the club’s financial records. This is because when the financial records were required, the first thing Yossi thought of was his wife. He did not want to spoil his relationships after having been married for 12 years because of a financial report. This explains his decision to discuss the issue with his partner, Lou Wolf.
I think Yossi did not do the right thing. When he found out that his wife Dina had given the final decision to capitalize all the advertisement costs of the Club, he should have sought to know the reason as to why she decided to act this way. This is because Yossi and his wife Dina shared all their opinions, which also included opinions about their professional lives. He should not have kept silent about the situation of the matter, he should have discussed the situation with his wife first before he sought help from his partner about the financial plans. Yossi should have been independent in his decision, because he should not have talked to his partner about what he should do in the situation with his wife. This shows that he felt the necessity to get a piece of advice from a third party, and not to decide just for himself as what to do. He was hesitating whether he should speak to his wife about the situation or not.
If I were in Yossi Caufman’s position, I would first discuss the issue with my wife and try to come up with a solution to the whole matter at a time. My wife has also passed the CPA Exam, and she perfectly knows of what is expected of her in the accounting profession. I am quite sure that she will see the logic in it. We would discuss the matter, and then come up with a solution to what we would do. If it is still not too late, we could also come up with a solution, for instance, to change the plans about the capitalization of the advertisement costs. Being an accountant, I’m sure that she would have a very good explanation to the situation.
I think that Dina would accept having committed a wrong action when it comes to the principles of accounting. Dina has an accounting profession, which proves she knows all the principles of accounting. I think that she will accept a possibility to change her decision about the capitalization of the advertisement costs; if it is still not too late to do anything. If it is too late, I think that she would accept to take full responsibility for breach of the accounting principles. I am very sure that Dina would be very understanding, since she respects her husband’s opinion as a wife and as a professional. She would understand the actions that her husband had to undertake as a professional, and she would support him in the decision that they would come up with as professionals, and not just as husband and wife.