Time Value of Money

Koger Properties, Inc.

Question 1

An external auditor's audience is share holders, stake holders, and any party that is not involved in the operations of the company. These parties need the external auditor report to make sure their money is well preserved. The auditor's task is to make sure the company is mainly following the GAAP rules and there is no fraud or manipulation in the financial statements and what the financial information is fairly presented. In the case of Koger properties, the auditor must not have any interests what so ever to maintain an unbiased report, in this case Michael Goodbread owned a large amount of shares in this company so his report could be biased to his favor since he owned nearly 25 million shares of common stock. It is true that he sold the shares a month before signing the report but having shares in the company he is auditing violated the code of professional conduct, and also his independence as an auditor. The SEC auditor rules prohibit any auditor to own shares or be a board of director's member or have any relation with the company as long as he is the company's auditor.

Question 2

In my opinion having 25 million shares worth of $650,000,000 is considered material. In this case materiality was not mentioned but in my opinion it should have been mentioned because if Goodbread was a regular investor with no insider information he wouldn't have sold his shares before the audit but since he had insider information he knew the company wasn't performing well and so he decided to sell the shares which in return must have affected the stock price.

Question 3

Goodbread was like any investor with no inside information till he became the auditor of Koger in 1990 and that's when he sold all his stocks before issuing an unqualified report. If Goodbread sold all his stocks before being the auditor of this company he wouldn't be breaking any independence rules or any other rule, it would have been a case of auditor client relationship and there would be nothing wrong in auditing this company even though he owned stocks in this company.

Question 4

It is mentioned that independent auditors were required to invest in companies they are auditing, this rule would force auditors to give a fair presentation of the company's financial stand since they are investing in the company and any opinion given other than the truth will affect their independence to other clients which will affect their reputation because if they issue a report that is biased or in their favor and doesn't represent the company's true financials would question their independence and share holders wouldn't trust this firm in further engagements. Concerning today's