ExpertHard1 markMultiple Choice
CPA · Question 01 · Area 1: Ethics
A CPA firm is auditing a large public company. The audit partner's spouse has just been promoted to a new role at the audit client. Under which of the following scenarios would the firm's independence be considered IMPAIRED according to AICPA and PCAOB independence rules?
A CPA firm is auditing a large public company. The audit partner's spouse has just been promoted to a new role at the audit client. Under which of the following scenarios would the firm's independence be considered IMPAIRED according to AICPA and PCAOB independence rules?
Answer options:
A.
The spouse is promoted to a marketing manager position with no financial oversight.
B.
The spouse participates in the client's employee stock ownership plan (ESOP) but disposes of the shares within 30 days of receipt.
C.
The spouse is promoted to the position of Director of Internal Audit.
D.
The spouse works as an administrative assistant in the human resources department.
How to approach this question
Identify the relationship (spouse = immediate family). Determine if the role at the client is a 'key position' or involves 'financial reporting oversight'.
Full Answer
C.The spouse is promoted to the position of Director of Internal Audit.✓ Correct
Under AICPA and PCAOB rules, independence is impaired if an immediate family member (spouse, spousal equivalent, or dependent) is employed by the audit client in a key position. A key position includes roles with primary responsibility for significant accounting functions, preparation of financial statements, or the ability to exercise influence over the contents of the financial statements (e.g., Director of Internal Audit).
Common mistakes
Assuming any employment at the client impairs independence; failing to distinguish between key and non-key positions.
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