| Course | AC504 Ethical Issues in Business and Accounting |
|---|---|
| Unit | Unit 4 |
| Paper type | Independence scenario response |
| Length | About 700 words, 5 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | MS in Accounting |
| Updated | October 2026 |
Free sample paper for AC504 Unit 4
An Unpaid Fee, Drafted Statements and a Brother in Fleet Accounting: A Unit 4 Independence Scenario Response
[Student Name]
Purdue University Global
AC504: Ethical Issues in Business and Accounting
Unit 4 Independence Scenario Response
[Instructor Name]
[Date]
The school-bus contractor, the audit firm, its staff and every figure are composite; the code and textbooks cited are real.
The Engagement
The client is a family-owned contractor running 240 school buses under district contracts. Its bank requires audited statements each year. The firm has audited it for six years and, each year, also drafts the financial statements and notes from the client's trial balance and proposes adjusting entries. This year's report is due to the bank on April 30.
The Code's framework works in three moves: name every threat, weigh it, and then either find safeguards strong enough to bring it within bounds or walk away from the work (American Institute of Certified Public Accountants [AICPA], 2014). Each arrangement is taken through those steps.
Arrangement 1: The Unpaid Fee
Facts. The $41,500 fee for last year's audit has been outstanding for eleven months.
Threat. Self-interest: an auditor owed money by a client has a stake in the client's ability to pay, and a reason to avoid findings that might strain the relationship. Unpaid fees can also start to look like a loan to the client.
Interpretation. The Code's interpretation on unpaid fees treats independence as impaired if fees for professional services rendered more than one year before the current year's report date are unpaid when the report is issued.
Safeguards and decision. No safeguard cures this one. The fee must be paid, not merely promised, before this year's report is dated. The partner will tell the client's owner this week that the firm cannot release the report until the balance is settled.
Arrangement 2: Drafting the Statements
Facts. The firm drafts the statements and notes it audits and proposes the adjusting entries.
Threat. Self-review and management participation: the firm could end up auditing its own work and making decisions that belong to management.
Interpretation. Nonattest services such as preparing financial statements are permitted if the general requirements are met: someone at the client with enough know-how to oversee the work must be named, must take responsibility for the statements, and must judge whether they are adequate (AICPA, 2014). The firm must document that understanding in writing.
Safeguards and decision. The client's office manager has handled bookkeeping for years but has never reviewed a set of financial statements. The firm will ask the owner to designate the controller the company hired in January, a former bank credit analyst, and will walk her through each statement and adjusting entry before she approves them. Assigning a staff member who did not prepare the statements to review them adds a further safeguard. Together these steps bring the threat within bounds.
Drafting the statements is allowed because the threat can be managed by putting a capable person on the client's side who owns the result, while the unpaid fee is not, because no procedure changes the fact that the firm is waiting to be paid.
Arrangement 3: The Senior's Brother
Facts. In February the client hired the audit senior's brother as fleet accounting supervisor. He maintains the bus fleet's fixed asset records, which carry $31 million of the company's $44 million of assets.
Threat. Familiarity and self-interest: a covered member's sibling in a position that influences a material account.
Interpretation. A close relative of a member of the engagement team who holds a key position at the client impairs independence. A role with primary responsibility for the records behind the largest balance on the balance sheet is a key position.
Safeguards and decision. Removing the senior from the engagement team resolves the threat, since the interpretation applies to individuals participating in the engagement. The firm will reassign him before fieldwork and document the change (Arens et al., 2020).
Before the Report Is Dated
All three changes must be in place: the fee paid, the controller designated and briefed with documentation in the file, and the senior reassigned. Each is recorded in the independence documentation for the engagement quality review (Mintz & Morris, 2020).
References
American Institute of Certified Public Accountants. (2014). AICPA code of professional conduct. AICPA.
Arens, A. A., Elder, R. J., Beasley, M. S., & Hogan, C. E. (2020). Auditing and assurance services (17th ed.). Pearson.
Mintz, S. M., & Morris, R. E. (2020). Ethical obligations and decision making in accounting: Text and cases (5th ed.). McGraw Hill.
Reading the AC 504 Unit 4 instructions
Unit 4 of AC504 asks you to evaluate an engagement's independence. Describe the engagement and the services the firm provides. For each arrangement that may affect independence, state the facts, name the threat category from the conceptual framework, identify the specific interpretation that governs, and decide whether safeguards can reduce the threat to an acceptable level. Be clear when no safeguard will work and the condition must simply be removed. For nonattest services, check each general requirement, including the client's designation of a capable individual. For relatives, decide whether the position held is a key position and who is a covered member. End with the conditions that must be met before the report is dated, and how they will be documented. Cite the professional code and two recognized texts in APA 7.
How the AC 504 Unit 4 example is put together
The sample opens with the engagement: a family-owned contractor with district contracts, a bank-required audit and statements drafted by the firm for six years. The unpaid fee section names a self-interest threat, applies the interpretation on fees more than a year old, and requires payment before dating. The drafting section names self-review and management participation threats, finds the office manager unqualified and designates a newly hired controller with credit experience, adding a separate review. The highlighted sentence contrasts the two outcomes. The brother's section finds fleet accounting a key position because it covers $31 million of $44 million in assets and removes the senior. A closing list sets three conditions for dating the report.
Where the points sit in the AC504 Unit 4 rubric
Independence responses in AC504 earn points for correct threat identification and accurate application of the governing interpretations. Graders check that each arrangement is analyzed separately, with the threat named in the framework's terms and the right interpretation cited. The rubric rewards recognizing when safeguards cannot help, as with old unpaid fees, and when they can, as with properly managed nonattest services. Key-position analysis should be tied to the client's balances. Covered-member reasoning should explain why removing an individual resolves a relative's impairment. Clear conditions before dating the report show practical judgment. Responses that treat every threat as fatal, or none as serious, are marked down. Each conclusion should rest on a cited interpretation, in APA 7.
Common AC504 Unit 4 mistakes, and how to avoid them
Common Unit 4 errors start with treating the unpaid fee as a minor collection matter rather than an impairment rule with a deadline. Students assume any nonattest service impairs independence, or the opposite, that drafting is fine without a qualified client designee. The designee's actual skill is never examined. Relatives are analyzed without asking whether the position is key or whether the auditor is a covered member. Safeguards are proposed in general terms. The response never states what must be done before the report is dated. If your section's scenario involves a public company or different services, a writer can apply the rules that govern that engagement.
Get an AC504 Unit 4 example written to your instructions
Set out the relationships and fee arrangements the Unit 4 prompt describes, and attach the rubric. Each arrangement is analyzed separately, with its threat, the governing interpretation, available safeguards and a decision, plus a public-company note if useful, returned inside 24-48h. Your opening request is not billed, and the contractor and firm are composites. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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AC504 Unit 4 questions, answered
Can a firm audit statements it helped prepare?
Under the AICPA Code, a private-company auditor may prepare the statements as a nonattest service if the client designates someone with suitable skill, knowledge or experience to oversee it, accepts responsibility for the results and makes the management decisions. The AC504 example finds that condition unmet here and fixes it. For public companies, SEC rules prohibit the service.
Why can't the firm just note the unpaid fee and move on?
Because the AICPA interpretation treats independence as impaired if, when the current report is issued, the client still owes for professional services provided more than one year before that report's date. A disclosure or a payment plan does not cure it. The example therefore makes collection a condition of dating the report, and says what happens if the client cannot pay.
Does the brother's promotion end the engagement?
No. The impairment attaches to an engagement team member with a close relative in a key position, so taking the senior off this audit resolves it, with the change documented and his further involvement ruled out. The AC504 example also checks whether the brother's role is truly key, because that finding decides whether any action is required at all.
Where can I find a free AC504 Unit 4 sample paper?
This page holds a full AC504 Unit 4 independence scenario response for a composite school-bus contractor's audit, covering an unpaid fee, statement drafting and a relative in a key position, with conditions before dating and APA 7 references.
Why can the firm draft the statements but not leave the fee unpaid?
Drafting creates a threat safeguards can manage, chiefly a capable client designee who owns the results. An old unpaid fee impairs independence under a specific interpretation, and no procedure removes the firm's stake in being paid.