During the past two years, you audited the financial statements of many clients, including Zohank Company. After one of your individual clients had a stroke, she created a living trust and appointed
you as the trustee. According to the trust documents, you may disburse funds on behalf of the grantor to adequately satisfy her medical needs. You may not, however, alter the trusts investment portfolio. The trusts total investment portfolio is worth $1 mil- lion and is comprised of five different stocks, each of which represents 20% of the value of the trusts assets. Zohank Company common stock is one of the five stocks held in the trusts portfolio. Do you retain the independence to audit Zohank Company? 2.While acting as a fiduciary, you recommended that your client buy a particular brand of refueling sta- tion to charge her new, electricity-powered car. You told your client that she would be able to save 70% of the purchase price of the home refueling station through a combination of tax credits and utility rebates. You were correct, and the client achieved these savings. However, you did not tell the client that you were receiving a $200 commission from the manufacturer of that particular refueling station brand. Your client now is furious that you received this commission and never told her about it. Do you owe your client $200?
Title: Ethical Dilemmas in Auditing and Fiduciary Responsibilities
Independence in Auditing Zohank Company
As an auditor who has previously audited Zohank Company's financial statements, being appointed as a trustee for one of your clients raises concerns about your independence. The trust documents restrict you from altering the trust's investment portfolio, which includes Zohank Company common stock. Given that you have a financial interest in Zohank Company through the trust, it may compromise your independence as an auditor when auditing Zohank Company.
The concept of independence is fundamental in auditing to ensure objectivity and integrity in the audit process. The financial interest you hold in Zohank Company through the trust may create a conflict of interest, as your financial well-being could be influenced by the financial performance of Zohank Company. This situation could impair your ability to maintain the necessary independence required to conduct an unbiased audit of Zohank Company.
Therefore, to uphold the principles of independence and ethical standards in auditing, it would be advisable to recuse yourself from auditing Zohank Company to avoid any perceived or actual conflicts of interest.
Fiduciary Responsibilities and Commission Disclosure
As a fiduciary, you recommended a particular brand of refueling station to your client without disclosing that you would receive a $200 commission from the manufacturer of that brand. While your recommendation enabled your client to achieve savings through tax credits and utility rebates as promised, failing to disclose the commission raises ethical concerns.
As a fiduciary, you have a legal obligation to act in the best interests of your client and provide full and transparent disclosure regarding any potential conflicts of interest. By not disclosing the $200 commission received from the manufacturer, you may have breached your fiduciary duty by placing your own financial interests above those of your client.
In this scenario, it would be ethically appropriate to disclose the commission received to your client and offer to reimburse the $200 to maintain transparency and trust in the fiduciary relationship. Transparency and honesty are crucial in fiduciary relationships to ensure that clients are fully informed about any financial incentives that may influence recommendations made by their fiduciaries.
Conclusion
In both scenarios presented, maintaining ethical standards and upholding integrity in auditing and fiduciary responsibilities are paramount. Upholding independence in auditing ensures that audit opinions are objective and unbiased, while transparency and disclosure in fiduciary relationships build trust and demonstrate a commitment to acting in the best interests of clients. By navigating these ethical dilemmas with integrity and accountability, professionals can uphold the principles of ethical conduct in their roles as auditors and fiduciaries.