Your audit client is upset that you insisted that it apply lower of cost or market to its holdings of marketable trading securities. Your client correctly informed you that a portfolio of marketable trading securities may be written up to market value, as well as down. However, you incorrectly refused to allow upward adjustments to its holdings of marketable trading securities.
Your client has filed a multimillion-dollar law- suit against you for malpractice. Outside counsel has advised you that “you screwed up, but no one read these statements or relied on these statements. The client suing you will never be able to prove that it suffered damages, so don’t sweat it.” You agree.
Is your independence impaired with respect to this audit client? Explain?