The case of the vaccinated investment
Ethics
Charles Selcer, CPA, MBA | May 2020 Footnote
Editor's note: Updated April 30, 2020
Liz Aard, CPA owns 1,800 shares of a mutual fund that she recently found out does not qualify as a diversified mutual fund. Her CPA firm, where she is a partner, audits Vaunted Vaccines, Inc., a company the mutual fund owns in its portfolio.
Q. Is her firm still independent?
A. If the investment is material to Liz, then independence is impaired. Here is how you might determine that:
- Liz owns 1,800 shares.
- Shares outstanding equals 290,000.
- Liz’s ownership investment of the fund equals 6.2%.
- Fund’s net asset value equals $10 million.
- Eight percent of the fund is invested in Vaunted Vaccines, Inc.
- The fund’s position in Vaunted Vaccines is 8% of $10 million, which equals $80,000.
- Her share is 6.2% times $80,000, which is $4,960.
Therefore, she feels this is not material to her net worth. Independence is not impaired. (See Code Section 1.240.030.04.)
