CPA Quiz: Aicpa Code Of Professional Conduct
20 questions · exam conditions
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Aicpa Code Of Professional ConductQuestion 1 of 20

Your firm performs a review engagement for a nonissuer technology startup. The client's chief financial officer asks you to design and implement the company's revenue recognition controls because "you know what auditors look for," and offers an increased fee if you can complete it before year-end. You are concerned this would involve assuming management responsibilities. How should the auditor ensure compliance with the AICPA Code?

Accept the request if the firm documents the increased fee and assigns a separate engagement team to the review.
Decline to design and implement the controls; if any consulting assistance is provided, ensure management retains responsibility and the service does not impair independence.
Accept the request because management is requesting the service and will be responsible for operating the controls after implementation.
Accept the request but obtain preapproval from the client's audit committee to satisfy independence requirements.
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CPA Quiz: Aicpa Code Of Professional Conduct

Practice Aicpa Code Of Professional Conduct in CPA with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

What this quiz covers

This quiz focuses on Aicpa Code Of Professional Conduct, giving you a quick way to practice the rules, question types, and explanations that matter most for CPA.

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Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

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Question 1

Your firm performs a review engagement for a nonissuer technology startup. The client's chief financial officer asks you to design and implement the company's revenue recognition controls because "you know what auditors look for," and offers an increased fee if you can complete it before year-end. You are concerned this would involve assuming management responsibilities. How should the auditor ensure compliance with the AICPA Code?

  1. Accept the request if the firm documents the increased fee and assigns a separate engagement team to the review.
  2. Decline to design and implement the controls; if any consulting assistance is provided, ensure management retains responsibility and the service does not impair independence. (correct answer)
  3. Accept the request because management is requesting the service and will be responsible for operating the controls after implementation.
  4. Accept the request but obtain preapproval from the client's audit committee to satisfy independence requirements.
Explanation: The AICPA Code prohibits members from performing management responsibilities for attest clients, as this creates a management participation threat that cannot be reduced to an acceptable level through safeguards. Designing and implementing internal controls is specifically identified as a management responsibility because it involves making decisions on behalf of management and creating the subject matter of the attest engagement. The member must decline to design and implement the controls, though limited consulting assistance may be acceptable if management retains all responsibilities, makes all decisions, and evaluates the adequacy of the services performed. Option A incorrectly suggests documentation and separate teams could mitigate the threat, Option C incorrectly assumes management's request eliminates the independence concern, and Option D incorrectly implies audit committee approval could permit management responsibilities for a nonissuer. The key principle is that members cannot create or implement the very controls they will later evaluate in an attest engagement, as this impairs the appearance of independence and violates the prohibition on management responsibilities.

Question 2

Your firm is engaged to audit a nonissuer entity that has adopted new accounting guidance requiring specialized valuation skills. The engagement partner plans to rely on prior-year workpapers and assign the valuation testing to a first-year staff member without involving a specialist to control costs. No one on the team has recent training in valuation techniques. How should the auditor ensure compliance with the AICPA Code?

  1. Proceed as planned because due care is satisfied if the audit is completed within the budgeted hours.
  2. Proceed but add a disclaimer paragraph noting that valuation procedures were limited by staffing constraints.
  3. Obtain appropriate competence through training and supervision and/or use a qualified specialist, and adjust the audit plan to perform the work with due professional care. (correct answer)
  4. Rely on management's valuation because management is responsible for the financial statements and the auditor is not required to be competent in valuation.
Explanation: The AICPA Code requires members to undertake only those professional services that can be completed with professional competence and to exercise due professional care in the performance of all services. When an engagement requires specialized skills that the engagement team lacks, such as complex valuation expertise, the firm must either obtain the necessary competence through training and supervision or engage a qualified specialist. Assigning complex valuation work to an inexperienced staff member without proper supervision or specialist involvement violates both the competence and due care principles. Option A incorrectly equates due care with meeting time budgets, Option B inappropriately suggests disclaiming responsibility for required audit procedures, and Option D misunderstands that auditor competence is required even though management prepares the financial statements. The key principle is that accepting an engagement creates an obligation to perform it competently, which may require obtaining specialized skills or engaging experts when the subject matter exceeds the engagement team's current capabilities.

Question 3

You are the engagement partner for the audit of a nonissuer manufacturer. During client acceptance, you learn your spouse owns 2% of the client's outstanding common stock and the audit is scheduled to begin next week. Management states the investment is "immaterial to the firm" and asks you to proceed without changes. Which action should the auditor take to maintain independence?

  1. Proceed with the audit because the investment is not material to the accounting firm as a whole.
  2. Resign from the engagement only if those charged with governance refuse to sign an independence representation.
  3. Remove yourself from the engagement and ensure the spouse disposes of the direct financial interest (or the firm declines/withdraws if not resolved) before performing professional services. (correct answer)
  4. Continue the engagement but add an emphasis-of-matter paragraph disclosing the spouse's ownership to users of the financial statements.
Explanation: The AICPA Code requires members to be independent when performing attest services, and independence is impaired when a covered member or their immediate family has a direct financial interest in an attest client. The spouse's 2% ownership of common stock constitutes a direct financial interest that impairs independence regardless of materiality to the firm. The correct response requires the covered member to either remove themselves from the engagement team and ensure the spouse disposes of the interest, or the firm must decline or withdraw from the engagement if the threat cannot be eliminated. Option A incorrectly applies a materiality threshold to direct financial interests, which have no materiality threshold under the Code. Option B incorrectly suggests that an independence representation from governance could cure the impairment, and Option D incorrectly proposes disclosure as a substitute for independence. The fundamental rule is that direct financial interests by covered members or immediate family always impair independence and must be eliminated before performing professional services.

Question 4

You are the senior on the audit of a nonissuer nonprofit organization. Your sibling is the organization's finance director and regularly socializes with you; they also review and approve proposed audit adjustments. You are assigned to lead testing over cash and contributions, which are areas your sibling oversees. Which factor would most likely affect the auditor's objectivity?

  1. The sibling relationship and close personal interactions with the finance director who has a key role in the financial reporting process. (correct answer)
  2. The nonprofit's use of contribution revenue, which is inherently complex and requires judgment.
  3. The fact that the engagement is a nonissuer, which reduces objectivity concerns compared to an issuer.
  4. The finance director's agreement to sign the management representation letter at the end of the audit.
Explanation: The AICPA Code identifies immediate family relationships with client personnel in key positions as creating familiarity and self-interest threats that impair independence and objectivity. The sibling relationship with the finance director, who has significant influence over financial reporting and reviews audit adjustments, creates an unacceptable threat to objectivity that cannot be reduced through safeguards. The regular social interactions further compound the familiarity threat, as personal relationships can unconsciously bias professional judgment. Option B incorrectly focuses on technical complexity rather than relationship threats, Option C misunderstands that nonissuer status does not reduce objectivity requirements, and Option D incorrectly suggests that signing representations eliminates relationship threats. The fundamental principle is that close personal relationships with client personnel in key positions compromise the appearance of objectivity and the ability to maintain professional skepticism, regardless of the individual's integrity or the engagement type.

Question 5

Your firm audits a nonissuer healthcare clinic. A subpoena is served on your firm requesting specific audit documentation related to a government investigation of the clinic's billing practices. The clinic's chief executive officer instructs you to ignore the subpoena due to confidentiality and to "let our attorneys handle it." What is the most appropriate response to the confidentiality issue?

  1. Refuse to provide any documents because client confidentiality always overrides legal demands.
  2. Provide the entire audit file to the requesting party immediately without consulting counsel to ensure cooperation.
  3. Consult legal counsel and respond as required by the valid subpoena/court order, disclosing only information that is legally required. (correct answer)
  4. Provide requested information only after obtaining written approval from the clinic's chief executive officer, regardless of the subpoena.
Explanation: The AICPA Code recognizes that confidentiality obligations may be overridden when disclosure is required by law, including response to a validly issued and enforceable subpoena or court order. When served with a subpoena for audit documentation, the member should consult with legal counsel to understand the scope of required disclosure and respond appropriately, providing only the specific information legally required. The client's instruction to ignore the subpoena does not relieve the member of legal obligations, though the member should inform the client of the subpoena unless prohibited by law. Option A incorrectly suggests confidentiality always prevails over legal requirements, Option B fails to exercise appropriate care in determining the scope of required disclosure, and Option D incorrectly conditions legal compliance on client approval. The key principle is that while confidentiality is fundamental, members must comply with legal obligations after appropriate consultation with counsel, disclosing only what is specifically required by valid legal process.

Question 6

While performing an audit of a nonissuer retail entity, you discover evidence suggesting the controller has been skimming cash receipts. A local newspaper contacts you after hearing rumors and asks you to confirm whether fraud occurred. The engagement letter contains standard confidentiality language and you have not received client permission to disclose. What is the most appropriate response to the confidentiality issue?

  1. Confirm the fraud to the newspaper because the public has a right to know and it may prevent further losses.
  2. Decline to comment and maintain confidentiality unless the client consents or disclosure is required by law or a valid subpoena/court order. (correct answer)
  3. Disclose the details only to the client's employees so they can protect themselves from the controller.
  4. Report the suspected fraud directly to law enforcement as part of the auditor's standard responsibilities under the AICPA Code.
Explanation: The AICPA Code's confidentiality rule prohibits members from disclosing confidential client information without the client's consent, except in specific circumstances such as compliance with a validly issued subpoena, summons, or court order. The discovery of potential fraud during an audit does not create an exception to confidentiality that would permit voluntary disclosure to the media or other third parties. The member must decline to comment and maintain confidentiality unless the client provides consent or disclosure is legally required through proper legal channels. Option A violates confidentiality by confirming fraud to the media without legal compulsion, Option C inappropriately discloses to employees without authority, and Option D incorrectly suggests auditors have a standard duty to report fraud to law enforcement under the AICPA Code. The key principle is that confidentiality obligations continue even when wrongdoing is discovered, and members must resist pressure to disclose information publicly unless legally compelled or specifically permitted by professional standards in limited circumstances.

Question 7

You are the engagement partner for the audit of a nonissuer private equity portfolio company. Management proposes recording a large "one-time" restructuring reserve without sufficient support and asks you to "just accept it" to avoid delaying the closing of a planned acquisition. Management implies they will replace your firm if you do not agree. What measure should be taken to address the integrity challenge?

  1. Accept the reserve because losing the client would harm the firm and the amount will reverse in future periods.
  2. Reduce audit procedures in the reserve area to avoid conflict and issue an unmodified opinion if the financial statements are otherwise fairly stated.
  3. Require sufficient appropriate audit evidence for the reserve, communicate with those charged with governance regarding the pressure, and modify the report or withdraw if a material misstatement is not corrected. (correct answer)
  4. Document management's request and then report the matter directly to the acquisition target's management to prevent the transaction.
Explanation: The AICPA Code requires auditors to maintain integrity and professional skepticism when evaluating management's accounting estimates and to resist pressure to accept unsupported accounting treatments. Management's proposal to record a large restructuring reserve without sufficient support, coupled with threats to replace the firm, represents both an attempt to manipulate financial reporting and an intimidation threat to the auditor's objectivity. The appropriate response is to insist on obtaining sufficient appropriate audit evidence for any recorded amounts, communicate the pressure and disagreement to those charged with governance, and if management refuses to correct a material misstatement, either modify the audit opinion or withdraw from the engagement. Option A violates integrity by accepting unsupported accounting, Option B inappropriately reduces audit procedures in response to pressure, and Option D breaches confidentiality by reporting to the acquisition target. The fundamental principle is that auditors must maintain professional standards even when faced with client threats, ensuring that financial statements are not materially misstated due to unsupported or fraudulent entries.

Question 8

You are assigned to the audit of a nonissuer family-owned business. The owner is a close friend who offers you an all-expenses-paid weekend trip after you complete fieldwork, stating it is a "thank you for working so hard" and not tied to the audit opinion. You have not yet finalized significant estimates and will be involved in concluding procedures. Which factor would most likely affect the auditor's objectivity?

  1. Acceptance of a significant gift from the client during the engagement, creating a self-interest and familiarity threat. (correct answer)
  2. The fact that the business is family-owned, which typically reduces audit risk and objectivity concerns.
  3. The timing of the offer because objectivity concerns arise only after the audit report is issued.
  4. The absence of an audit committee, because only those charged with governance can create objectivity threats.
Explanation: The AICPA Code prohibits members from accepting gifts or entertainment from attest clients that create undue influence or the appearance of compromised objectivity. An all-expenses-paid weekend trip from a client, especially when offered by a close friend during the engagement while significant judgments remain unresolved, creates both self-interest and familiarity threats to objectivity. The value and nature of the gift, combined with the personal relationship and timing during the engagement, would likely be viewed by a reasonable observer as potentially influencing professional judgment. Option B incorrectly suggests family ownership reduces objectivity concerns when it may actually increase them, Option C misunderstands that objectivity threats exist throughout the engagement not just after reporting, and Option D incorrectly limits threat sources to governance bodies. The key principle is that members must decline gifts of more than token value from attest clients to maintain both actual objectivity and the appearance of independence, with particular scrutiny when personal relationships compound the threat.

Question 9

You are auditing a nonissuer construction contractor. Near the end of fieldwork, management asks you to reduce the proposed allowance for doubtful accounts adjustment so the company can meet its bank covenant, and offers to "move future tax work" to your firm if you agree. The proposed adjustment is supported by audit evidence and management's estimate appears biased. What measure should be taken to address the integrity challenge?

  1. Accept management's estimate because the allowance is inherently subjective and the client is offering additional business.
  2. Issue the auditor's report as planned and separately notify the bank about management's pressure to avoid the covenant violation.
  3. Communicate the pressure and the proposed adjustment to those charged with governance and, if management refuses to correct a material misstatement, modify the audit opinion or withdraw when appropriate. (correct answer)
  4. Treat the matter as a PCAOB critical audit matter and include it in the auditor's report to increase transparency.
Explanation: The AICPA Code requires members to maintain integrity and objectivity, which includes resisting client pressure to accept inappropriate accounting treatments and addressing attempts to influence professional judgment through inducements. When management pressures the auditor to accept a biased estimate to avoid covenant violations and offers future business as an inducement, this creates both an advocacy threat and a self-interest threat. The appropriate response is to communicate the issue to those charged with governance, insist on proper accounting treatment supported by audit evidence, and if management refuses to correct a material misstatement, either modify the audit opinion or withdraw from the engagement. Option A violates integrity by accepting a biased estimate for business reasons, Option B inappropriately breaches confidentiality by notifying the bank, and Option D incorrectly references PCAOB standards for a nonissuer audit. The fundamental principle is that auditors must maintain professional skepticism and integrity even when faced with client pressure or inducements, ensuring that financial statements are not materially misstated due to management bias.

Question 10

You are assigned to the audit of a nonissuer insurance agency. The engagement partner is a close personal friend of the client's CEO and frequently socializes with the CEO during the audit, including discussing audit issues informally at social events. Which factor would most likely affect the auditor's objectivity?

  1. A familiarity threat due to a close personal relationship with client management. (correct answer)
  2. The client's use of an outside actuary to estimate liabilities.
  3. The audit team's use of analytical procedures during planning.
  4. The firm's policy requiring partner review of significant audit judgments.
Explanation: Objectivity is impaired by familiarity threats from close personal relationships with client management, as per the AICPA Code. The partner's friendship and informal discussions with the CEO create a familiarity threat that could bias audit judgments. This aligns with ET 1.110.010, identifying such relationships as risks. Use of actuaries, analytics, or partner reviews are standard practices not affecting objectivity per ET 1.100.001. These factors relate to procedures, not biases. Auditors should limit social interactions that could impair appearance. A framework is to evaluate relationships for familiarity threats and apply safeguards like reassignment. Document mitigations to ensure objective professional judgment.

Question 11

You are auditing a nonissuer client and identify a material misstatement related to revenue cut-off. Management proposes recording an unsupported top-side adjustment after year-end and asks you to "accept it as an audit adjustment" without updating the general ledger, so the internal reports remain unchanged. What measure should be taken to address the integrity challenge?

  1. Accept the proposal because audit adjustments may be recorded only in the auditor's workpapers if management agrees.
  2. Require management to record the adjustment in the accounting records (or otherwise correct the misstatement) and evaluate the effect on the opinion if they refuse. (correct answer)
  3. Post the adjustment yourself to ensure the financial statements are correct and independence is maintained.
  4. Issue an unmodified opinion as long as management signs the representation letter acknowledging the misstatement.
Explanation: Integrity requires auditors to ensure misstatements are corrected and financial statements are fairly presented, per the AICPA Code. Management's unsupported adjustment without ledger update misrepresents the records and risks misleading users. Requiring correction and evaluating opinion impact aligns with ET 1.100.001 and AU-C 450, upholding accuracy. Accepting or posting personally compromises integrity under ET 1.100.001, and issuing unmodified with representations ignores misstatement rules. Auditors should communicate refusals to governance. A decision rule is to insist on proper recording of adjustments. Escalate uncorrected material misstatements for report modification.

Question 12

You are the engagement partner for a review of interim financial statements of a nonissuer retailer. Mid-engagement, the client offers you two tickets to a major sporting event valued at $1,200 as a "thank you," and the client's CFO suggests it will help secure next year's audit engagement. Which action should the auditor take to maintain independence?

  1. Accept the tickets because they are a customary business courtesy and do not affect independence in a review engagement.
  2. Accept the tickets if you document that they are immaterial to the firm and disclose acceptance to those charged with governance.
  3. Decline the tickets because accepting a significant gift creates a self-interest threat to independence. (correct answer)
  4. Accept the tickets but assign additional staff to the engagement to mitigate the threat.
Explanation: Independence rules in the AICPA Code prohibit accepting significant gifts from attest clients as they create self-interest threats. The $1,200 sporting event tickets offered mid-engagement, linked to future work, represent a significant gift that could impair independence in the review. Declining the tickets aligns with ET 1.285.010, which requires evaluating and mitigating such threats to maintain independence. Accepting as a courtesy or with documentation ignores the threat's impact on appearance under ET 1.210.010, and assigning more staff does not reduce the self-interest per the Code. Disclosure to governance does not eliminate the impairment as per ET 1.200.001. Auditors should assess all gifts for significance and intent to influence judgment. A professional framework is to reject gifts exceeding token value to preserve independence and public confidence.

Question 13

You are auditing a nonissuer client. The client proposes paying 50% of the audit fee only if the audit report is issued by a tight deadline needed for a financing, and the remaining 50% will be paid only if the financing closes. Which action should the auditor take to maintain independence?

  1. Accept the arrangement because it is a standard business practice and does not depend on the audit outcome.
  2. Reject the contingent fee component and require a fee arrangement that is not contingent on the financing closing. (correct answer)
  3. Accept the arrangement if the firm performs additional procedures to compensate for the fee risk.
  4. Accept the arrangement if those charged with governance approve it in writing.
Explanation: Independence prohibits contingent fees for attest services as they create self-interest threats, per the AICPA Code. The fee tied to deadline and financing closure is contingent on outcomes, impairing independence. Rejecting the contingent component aligns with ET 1.510.001, requiring fixed fees. Accepting with procedures or approval ignores the prohibition in ET 1.500.001. Auditors should structure fees to avoid dependence on results. A framework is to evaluate fee arrangements for threats. Ensure all attest fees are non-contingent to preserve objectivity and appearance.

Question 14

Your firm audits a nonissuer company. The client is 120 days past due on audit fees from the prior year, and management asks you to begin the current-year audit immediately, promising payment "once cash improves." Which action should the auditor take to maintain independence?

  1. Begin the audit because unpaid fees do not affect independence if the current-year engagement letter is signed.
  2. Treat the unpaid prior-year fees as a loan and address the independence threat by requiring payment before issuing the current-year report (and consider whether to begin work). (correct answer)
  3. Begin the audit but increase substantive testing to compensate for the fee collection risk.
  4. Begin the audit and ask the client's bank to guarantee the fees to preserve independence.
Explanation: Independence treats unpaid prior-year fees as loans impairing independence if not collected before the current report, per the AICPA Code. The 120-day overdue fees create a financial self-interest threat. Addressing as a loan and requiring payment aligns with ET 1.255.010, preserving independence. Beginning without action or with testing increases ignores the threat in ET 1.240.010, and guarantees do not eliminate it. Auditors should resolve fee issues pre-engagement. A decision rule is to collect overdue fees before issuing reports. Evaluate financial ties for impairment risks.

Question 15

A CPA firm has audited the same nonissuer client for 15 years. The current engagement partner has been the lead partner for the last 6 years. The firm is concerned about the familiarity threat to independence.

Which of the following is the most effective safeguard to mitigate the familiarity threat in this situation?

  1. Requiring a concurring partner review of the audit engagement.
  2. Rotating the lead engagement partner off the audit. (correct answer)
  3. Increasing the level of professional skepticism applied during the audit.
  4. Obtaining a management representation letter confirming management's responsibility.
Explanation: The familiarity threat arises from a long or close relationship with a client, which may lead to the auditor being too sympathetic to the client's interests or too accepting of their work. While a concurring partner review is a good safeguard, the most effective safeguard against a familiarity threat caused by a long tenure of senior personnel is to rotate those individuals off the engagement team. Note that while partner rotation is required by the SEC/PCAOB for issuers after 5 years, it is a recommended safeguard, not a requirement, under AICPA standards for nonissuers, but it is the most effective one listed.

Question 16

A staff accountant on the attest engagement team for a nonissuer client inherits a small number of shares of the client's stock, representing an immaterial direct financial interest. To comply with the AICPA Code of Professional Conduct, what action is required?

  1. The accountant must place the shares in a blind trust.
  2. The accountant must dispose of the shares within 30 days of discovery. (correct answer)
  3. The accountant must be removed from the engagement team for the current year.
  4. The accountant must disclose the interest to the client's audit committee.
Explanation: According to the AICPA Code of Professional Conduct (ET 1.240.010), independence is impaired by a direct financial interest, regardless of materiality. However, independence is not considered impaired if a member inadvertently acquires such an interest and disposes of it in a timely manner. The interpretation provides a safe harbor if the member disposes of the interest as soon as practicable, but no later than 30 days after having knowledge of the interest.

Question 17

A CPA firm is contacted by a potential successor auditor regarding a former attest client. Before responding to the successor auditor's inquiries, what must the predecessor auditor do according to the AICPA Code of Professional Conduct?

  1. Respond fully and candidly to all inquiries without contacting the former client.
  2. Obtain permission from the former client before disclosing any confidential information. (correct answer)
  3. Provide only publicly available information to the successor auditor.
  4. Insist that the former client settle all outstanding fees before any communication occurs.
Explanation: The 'Confidential Client Information Rule' (ET 1.700.001) prohibits a member from disclosing confidential client information without the specific consent of the client. An exception exists for communications with a successor auditor, but the predecessor auditor must first obtain the client's permission, preferably in writing, before responding to the successor's inquiries.

Question 18

A CPA provides tax services for a client. The CPA's firm also performs a financial statement review engagement for this same client. The CPA proposes a fee for amending the client's prior-year tax return that is based on the amount of the tax refund the client receives. Is this fee arrangement permitted under the AICPA Code of Professional Conduct?

  1. Yes, because the fee relates to a tax service, which is a nonattest service.
  2. Yes, if the arrangement is disclosed in writing to the client and the estimated fee is reasonable.
  3. No, because contingent fees are not permitted for a client for whom the member's firm performs a review engagement. (correct answer)
  4. No, unless the outcome of the tax amendment is determined by a court or government agency.
Explanation: The 'Contingent Fees Rule' (ET 1.510.001) prohibits a member from performing for a contingent fee any professional service for a client for whom the member or the member's firm performs an audit, a review, a compilation of a financial statement expected to be used by a third party, or an examination of prospective financial information. Because the firm performs a review, a contingent fee for any service is prohibited.

Question 19

An audit firm has derived 25% of its total fees from a single, large audit client for the past three consecutive years. Management of the audit firm is concerned about potential threats to independence.

According to the AICPA's Conceptual Framework for Independence, this situation creates which primary threat?

  1. Self-review threat.
  2. Advocacy threat.
  3. Familiarity threat.
  4. Undue influence threat. (correct answer)
Explanation: An undue influence threat occurs when a member's judgment may be subordinated due to the client's reputation, expertise, aggressive personality, or attempts to coerce the member. Significant economic dependence on a client, such as when fees from that client are a large portion of the firm's total revenue, creates a threat that the firm may be unduly influenced by the client and reluctant to take positions that the client finds disagreeable.

Question 20

A partner in a CPA firm's Denver office owns a material financial interest in a publicly traded company. The firm's Atlanta office performs the audit for this company. The Denver partner has no professional responsibilities related to the engagement and cannot influence its outcome. Is the firm's independence impaired?

  1. Yes, because any partner in the firm owning a material financial interest impairs independence.
  2. No, because the partner is not located in the same office as the lead engagement partner.
  3. Yes, because the financial interest is material to the partner.
  4. No, because the partner is not a covered member with respect to this audit engagement. (correct answer)
Explanation: Independence rules regarding financial interests apply to 'covered members.' A partner in an office that does not participate in the engagement (e.g., the Denver partner) is not automatically a covered member. As long as the partner is not in a position to influence the attest engagement, they are not a covered member, and their financial interests (even if material to them) do not impair the firm's independence.