 In this presentation, we will discuss prohibited business relationships with regards to audit and attestation engagements prohibited business relationships. In general, the independence of a CPA is impaired. First, a word from our sponsor. Well, actually, these are just items that we picked from the YouTube shopping affiliate program. But that's actually good for you, because these aren't things that were just given to us from some large corporation, which we don't even use in exchange for us selling them to you. These are things that we actually researched, purchased and used ourselves. Bayer Dynamic? Not sure if I said that right, but this is the DT770 Pro 250 OHM Studio Reference Closed Back Headphones. I wear headphones basically every day for a large part of the day. They are important to me. Therefore, I've gone through many different kinds of headphones. I've had these for some time, and they've worked quite well. 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You can purchase one at a time, or have a subscription model, giving you access to all the courses, courses which are well organized, have other resources like Excel files and PDF files to download and no commercials. If the CPA performs a managerial or other significant rule for the business during the time period covered by the attest engagement. Now, you might look at this and say, well, that's obvious, of course, because if you are playing a significant role in some way in the company, such as some type of management type of role, and then you audit that company and give an opinion on the fairness of the financial statements, you would think that you're basically critiquing, you're basically the judge of your own work to some degree, you're somewhat invested, given the fact that you actually did a lot, some of the work or performed an influential position within the organization. But this is a problem and it can kind of sneak up on an organization as well, because note that it's natural if you audit the CPA, if you audit a company and you're a CPA firm, and you audit their internal controls and you have a lot of experience with internal controls, it's natural for them to ask you questions. And it's natural then for a firm to basically could just end up picking up more work, just in terms of work creep, basically, that work just kind of growing to some degree to the point where the CPA is basically acting possibly as a role that was as a counselor role, but now possibly as a more of a managerial type of role. So note that CPA firms and really need to kind of evaluate from time to time, the kind of services that they're providing to those, especially those clients, which they are giving attestation services to, to make sure that they can possibly give some advice on the types of systems they're putting together, but not be in danger of violating independence by taking on a role that would be basically a managerial type of role and influential role within the organization. In general, a firm's independence will be impaired if a partner or professional employee leaves the firm and is subsequently employed by or associated with that entity in a key position, unless a number of conditions are met. Okay, so now this is of course another type of problem that often happens with basically large types of CPA firms oftentimes, and the companies that they audit, because note that as an auditor goes into a large CPA firm, they will typically audit these large companies, possibly get to know the organization, the members of the large companies as they are auditing the large company, and then may want to basically go work for that company after that point in time. Now, of course, if the if the auditor goes from a CPA firm working in the CPA firm and then works in the organization in a key position, then you could see how that could potentially have some conflict of interest with regards to the audit next year. So now you've got because now you've got basically the people in the organization is now comprising to some degree possibly in key position of people that used to work within the audit firm. And that you can see how that could be a situation that could compromise independence. Next, we'll consider family relationships. A covered member's immediate family is subject to the independence rule and its interpretations. Immediate family includes spouse, spouse, spousal equivalent, or dependent. So the dependent, whether they be a child or another dependent on the tax return. So when we consider these individuals in terms of immediate family, we can consider situations where they are going to be more likely to cause independence issues in certain situations. For example, if we have if we're a covered member, and we're performing, we're part of the audit team, we have influence within the audit team and our spouse is someone that has influence in the organization, that could be a problem, of course, for independence. And that would be the same for a spousal equivalent or dependent as well. So that could impair the independence in certain types of situations when we have the immediate family, including these individuals. What about other individuals within the family? We consider the close relatives. So now we go to the second level of family members that could cause problems with regards to independence. Close relatives include children. And we're considering children at this level that wouldn't be dependents. So they're not dependents are not being claimed as dependents on the tax return. Brothers, sisters, parents, grandparents, and parents in law, and their spouses. So when is it that these individuals might impair independence? So we have the close relatives, we're thinking about independence. When is it that these close relatives might have a problem with regards to independent causing us problems within the audit engagement? When a close relative has a financial interest in the entity that is material to them and the CPA participating in the engagement is aware of the interest. Now you can see how this could cause a problem again because it would in appearance and possibly in fact, if not in fact, in appearance, it could look bad, right? If we have basically an individual that's going to be in the audit engagement of a large organization and they have their child has a large amount of money that's invested in that organization, then you could see how that could look bad, at least in an appearance situation. And you could see why it would look bad because people might think, of course, that a favorable type of opinion within the audit engagement could benefit the child. In other words, they might think, well, what if the parent wanted to benefit by this by taking the money, giving it to the child so that they're not impaired with regards to independence, and then it would have more incentive to give a favorable opinion, given the fact that they're not directly invested, but have a close relative who is directly invested. So that's the kind of thing that would run through people's minds, right? Even if it's not the case, even if that's not the case in practice, that's the kind of things that can impair independence with regards to perception of the situation. And therefore, the type of thing that generally you want to avoid within the audit engagement. When somebody participating in the engagement has a close relative who could exercise significant influence over the financial or accounting policies of the entity. So if there's someone, again, that's going to be a close relative that's that could have, you know, influence over the organization, you could see how once again, even if not, in fact, at least in appearance, that could seem to compromise independence. And therefore, you don't want that type of situation that type of situation could be a violation then of independence.