Question

I am trying to conduct audit research regarding the independence between an auditor and a client. If an auditor and client shared the same business in the form of a horse farm, would that be classified as a "profit-sharing trust" (AICPA 1.275.005 (1))

Answer 1

Answer)

A Profit Sharing Trust is offering certain percentage of profit to the employees by the company to create a sense of ownership in the employees. Here, shared the same business between an auditor and client cannot be termed as Profit Sharing Trust as the auditor is not an employee of such horse farm. Moreover he won't be eligible for audit of that particular horse farm as his independent gets affected by sharing those profits.