Question

Is it appropriate for an audit firm to ask questions of an employee about his or her investments or the investments of his or her spouse? Why or why not?

Answer 1

Yes, it is appropriate for an audit firm to ask questions of an employee about his or her investments or investments of his or her spouse.

This is because in order to accept an audit engagement and for selecting the audit team to work on that engagement, it is manadatory for the audit firms to ensure "compliance" of their team members. One of the points to be checked in Independence compliance is that no one in the audit team or their relatives should be having investment in the company being audited above a certain threshold as prescribed by the relevant audit regulations and guidelines.

Hence an audit firm is mandated by the law to obtain information from their employees regarding their and their relatives' investments in order to ensure compliance with the independence requirements of the applicable law.