Question: A. Marie Janes encounters the following situations in doing the audit of a large auto dealership. Jane is not a partner.
1. The sales manager tells her that there is a sale (at a substantial discount) on new cars that is limited to long-established customers of the dealership. Because her firm has been doing the audit for several years, the sales manager has decided that Janes should also be eligible for the discount.
2. The auto dealership has an executive lunchroom that is available free to employees above a certain level. The controller informs Janes that sh can also eat there any time.
3. Janes is invited to and attends the company's annual Christmas party. When presents are handed out, she is surprised to find her name included. The present has a value of approximately $200.
B. Use the three-step process in the AICPA's independence conceptual framework to assess whether Janes independence has been impaired.
a. Describe how each of the situations might threaten Janes' independence from the auto dealership.
b. Identify a safeguard that Janes' firm could impose that would eliminate or mitigate the threat of each situation to Janes' independence.
c. Assuming no safeguards are in place and Janes accepts the offer or gift in each situation, discuss whether she has violated the rules of conduct.
d. Discuss what Janes should do in each situation.