EXAM - Independence Rules

Question 1

Which of the following situations would not impair objectivity, integrity, or independence with
respect to an audit client?

A. An auditor takes the client’s audit committee to Las Vegas for the weekend.

B. An out-of-town client takes the audit engagement team out to dinner at a renowned local
restaurant .

C. An auditor provides client management with box seats for the season at a major league
baseball franchise.

D. A client takes the audit engagement team on a two-day ski trip after the audit team worked
for two consecutive weekends.

Answer 1

Explanation
Choice “B” is correct. Objectivity, integrity, or independence would not be impaired if a client
takes the audit engagement team out to dinner at a renowned local restaurant. Of the
choices, this appears to be the most reasonable based on the circumstance , and clearly
insignificant to the recipient.
Objectivity or integrity is considered impaired if a member offers or accepts gifts or
entertainment to or from a client, unless the gift or entertainment is reasonable in the
circumstances . Relevant facts and circumstances would include, but are not limited to:
• The nature of the gift or entertainment.
• The occasion giving rise to the gift or entertainment.
• The cost or value of the gift or entertainment.
Independence would be considered to be impaired if the member’s firm or member on the
attest engagement or in a position to influence the attest engagement accepts a gift from an
attest client, if the value is clearly more than a token gift.
Choice “A” is incorrect. Objectivity, integrity, and independence appear to be impaired if an
auditor takes the client’s audit committee to Las Vegas for the weekend .
Choice “C” is incorrect. Objectivity, integrity, and independence appear to be impaired if an
auditor provides client management with box seats for the season at a major league baseball
franchise.
Choice “D” is incorrect. Objectivity, integrity, and independence appear to be impaired if a
client takes the audit engagement team on a two-day ski trip after the audit team worked for
two consecutive weekends.

Question 2

According to the SEC, an auditor is not independent of its issuer audit client in which of the
following situations?
A. The auditor’s cousin has an insurance policy obtained from the issuer before it became an
audit client.
B. The auditor has an automobile loan at standard terms from the audit client that is
collateralized by the automobile.
C. The auditor has an investment in an entity that has the ability to exercise significant
influence over the audit client.
D. The auditor’s grandparent was in an accounting role at the audit client and ended
employment before the period under audit began.

Answer 2

Explanation
Choice “C” is correct. An investment in an entity that has the ability to exercise significant
influence over the audit client would be considered a violation of the Independence Rule .
Choice “A” is incorrect. A covered member’s spouse and dependents are also generally
subject to the Independence Rule; however this does not extend to cousins.
Choice “B” is incorrect. Independence is not impaired in a financial institution client by a fully
collateralized car loan with a financial institution client.
Choice “D” is incorrect. A covered member’s spouse and dependents are also generally
subject to the Independence Rule; however this does not extend to grandparents .

Question 3

Must a CPA in public practice be independent of mind and in appearance when providing the
following services?
Compilation Preparation of Tax Return Consulting
.A Yes No No
B. No Yes No
C. No No Yes
D. No No No

Answer 3

Explanation
Choice “D” is correct. Independence is not required for compilation engagements or for
preparation of a tax return.

Question 4

According to the Code of Professional Conduct of the AICPA, for which type of service may a
CPA receive a contingent fee?
A. Performing an audit of a financial statement.
B. Performing a review of a financial statement.
C. Performing an examination of prospective financial information.
D. Seeking a private letter ruling.

Answer 4

Explanation
Choice “D” is correct. According to the Contingent Fee Rule, contingent fees are permitted
when they involve a legal proceeding or ruling. When a CPA is receiving a contingent fee for
a private letter ruling, it would be allowed under the Contingent Fee Rule and not be
considered “contingent” because it would most likely be fixed by the legal jurisdiction.
Choice “A” is incorrect. Contingent fees are prohibited for audits of a client’s financial
statements.
Choice “B” is incorrect. Contingent

Question 5

In which of the following situations is there a violation of client confidentiality under the AICPA
Code of Professional Conduct?
A. A member discloses confidential client information to a court in connection with arbitration
proceedings relating to the client.
B. A member discloses confidential client information to a professional liability insurance carrier
after learning of a potential claim against the member.
C. A member whose practice is primarily bankruptcy discloses a client’s name.
D. A member uses a records retention agency to store clients’ records that contain confidential
client information.

Answer 5

Explanation
Choice “C” is correct. An ethics ruling related to the Confidential Client Information Rule
states that it is permissible for a member to disclose the name of a client without the client’s
consent unless the disclosure of the client’s name results in the release of confidential
information. The specific example given in the ethics ruling states that if a member’s practice
is limited to bankruptcy matters, the disclosure of a client’s name suggests that the client may
be experiencing financial difficulties, which could be confidential client information, and
therefore a violation of client confidentiality.
Choice “A” is incorrect. A member is required to disclose confidential client information if
necessary to comply with a validly issued subpoena or summons. Therefore, a disclosure of
confidential client information to a court in connection with arbitration proceedings related to
the client would not violate confidentiality rules.
Choice “B” is incorrect. A member is required to disclose confidential client information if
necessary to comply with a validly issued subpoena or summons. Therefore, a disclosure of
confidential client information to a professional liability insurance carrier after learning of a
claim against the member would not violate confidentiality rules.
Choice “D” is incorrect. The use of a records retention agency to store client records does
not violate confidentiality rules.

Question 6

A CPA who is not in public practice is obligated to follow which of the following rules of
conduct?
A. Independence.
B. Integrity and objectivity.
C. Contingent fees .
D. Commissions.

Answer 6

Choice “B” is correct. A CPA must maintain objectivity and integrity in the performance of any
professional service.
Choice “A” is incorrect. Independence is only required for audits and other attestation
services. A CPA who is not in public practice would not perform audits or attestation services.
Choice “C” is incorrect. Contingent fees are fees based on a specific finding or result, and
they are often prohibited for attest engagements.
Choice “D” is incorrect. Commissions are prohibited if the CPA is performing an audit or
review, an examination of prospective financial information or a compilation when the
member does not disclose independence. These prohibitions are not applicable to a CPA who
is not in public practice.

Question 7

According to the profession's ethical standards, which of the following events may justify a
departure from U.S. GAAP.
A. No Yes
B. Yes No
C. Yes Yes
D. No No

Answer 7

Choice “C” is correct. Yes - Yes. The Accounting Principles Rule of the Code of Professional
Conduct of the AICPA states that if the financial statements or data contain a GMP
departure, the departure may be justified if the CPA can demonstrate that due to unusual
circumstances, such as new legislation or the evolution of a new form of business
transaction, the financial statements would otherwise be misleading .
Under these circumstances, the auditor’s report should describe the departure, its
approximate effects, if practicable , and the reasons why compliance with the generally
accepted principle would result in a misleading statement.
Choices “A”, “B”, and “D” are incorrect, per the above explanation.

Question 7

According to the AICPA Code of Professional Conduct, which of the following actions by a
CPA most likely involves an act discreditable to the profession?
A. Refusing to provide the client with copies of the CPA’s workpapers .
B. Auditing financial statements according to governmental standards despite the client’s
preferences .
C. Accepting a commission from a nonattest function client.
D. Retaining client records after the client demands their return.

Answer 7

Explanation
Choice “D” is correct. Retaining client owned records after the client demands their return is
a violation of the Discreditable Acts Rule.
Choice “A” is incorrect. As the CPA’s workpapers are technically owned by the CPA, there is
no requirement to turn them over to the client.
Choice “B” is incorrect. This would not be considered a discreditable act. Failure to follow
such standards may be considered an act discreditable .
Choice “C” is incorrect. This is not a violation, as the client is a nonattest client.

Question 8

The Code of Professional Conduct, Independence Rule, does not consider which of the
following circumstances to be a lack of independence:
A. The CPA firm’s sole audit manager served as controller of the firm’s audit client from the
January Year 1 through to May, Year 6 when the manager began working with the CPA firm.
The current audit period for this client is from April 1, Year 6 through to March 31 , Year 7.
B. The auditor’s brother-in-law’s father is the controller of the client being audited.
C. The auditor provides valuation and appraisal services to a client, the results of which are
material to the client’s financial statements.
D. A financial institution client loans the auditor money to buy a car but does not collateralize
the loan.

Answer 8

Explanation
Choice “B” is correct. Independence is impaired by a member, a member’s spouse or
dependents, or a close family member who holds a key position in an audit client. According
to the Code, a close relative is defined as a parent, sibling, or nondependent child. Since a
brother-in-law and family of the brother-in-law are not considered to be close relatives,
independence would not be impaired.
Choice “A” is incorrect. A CPA auditor cannot work for the client in a key position during the
audit year.
Choice “C” is incorrect. If the results of the valuation and appraisal services are material to
the client’s financial statements, the auditor’s independence is impaired.
Choice “D” is incorrect. Fully-collateralized automobile loans made within the normal course
of business by a financial institution are specifically permitted and do not impair
independence. Since this loan is not collateralized, independence is impaired.

Question 10

Under the ethical standards of the profession, which of the following positions would be
considered a position of significant influence in an audit client?
A. A marketing position related to the client’s primary products.
B. A policy-making position in the client’s finance division.
C. A staff position in the client’s research and development division.
D. A senior position in the client’s human resources division.

Answer 10

Explanation
Choice “B” is correct. The Independence Rule of the Code of Conduct requires auditors to be
independent of their clients . Independence is not impaired by an immediate family member’s
employment with a client provided that (s)he is not in a key position. Having a policy-making
position in the client’s finance division would clearly be a key position.
Choices “A”, “C”, and “D” are incorrect. Having a marketing position, a position in research
and development or a position in human resources would not be directly related to financial
activities.

Question 12

Under the Code of Professional Conduct of the AICPA, which of the following is required to be
independent in fact and appearance when discharging professional responsibilities?
A. A CPA in public practice providing tax and management advisory services.
B. A CPA in public practice providing auditing and other attestation services.
C. A CPA not in public practice.
D. All CPAs.

Answer 12

Explanation
Choice “B” is correct. A CPA in public practice should be independent in fact and appearance
when providing auditing and other attestation services.
Choice “A” is incorrect. Only a CPA providing audit or attestation services need be
independent; A CPA performing tax and management advisory services need not be
independent.
Choice “C” is incorrect. Only a CPA in public practice must be independent; a CPA not in
public practice need not be independent.
Choice “D” is incorrect. Only CPAs who are in public practice must be independent; not all
CPAs.

Question 13

Under which of the following circumstances may a CPA charge fees that are contingent upon
finding a specific result?
A. For an examination of prospective financial statements.
B. For an audit or a review if agreed upon by both the CPA and the client.
C. For a compilation if a third party will use the financial statement and disclosure is not made
in the report.
D. If fixed by courts, other public authorities, or in tax matters if based on the results of judicial
proceedings.

Answer 13

Explanation
Choice “D” is correct. Fees are not regarded as being contingent when they are fixed by
courts or other public authorities or in tax matters, if they are based on the results of court
proceedings or the findings of governmental agencies. Further, contingent fees are permitted
for compilations only if the member includes a statement that the member is not independent.
Choice “A” is incorrect. Contingent fees are specifically prohibited for audits and reviews of
financial statements or examinations of prospective financial information .
Choice “B” is incorrect. Contingent fees are specifically prohibited for audits and reviews of
financial statements or examinations of prospective financial information.
Choice “C” is incorrect. Contingent fees are permitted for compilations only if the member
includes a statement that the member is not independent.

Question 14

Kar, CPA, is a staff auditor participating in the audit engagement of Fort, Inc. Which of the
following circumstances impairs Kar’s independence?
A. During the period of the professional engagement, Fort gives Kar tickets to a football game
worth $75.
B. Kar owns stock in a corporation that Fort’s 401 (k) plan also invests in.
C. Kar’s friend, an employee of another local accounting firm, prepares Fort’s tax returns.
D. Kar’s sibling is an internal auditor employed part-time by Fort.

Answer 14

Explanation
Choice “D” is correct. Independence of a member is impaired if the CPA’s spouse, parent,
child, sibling, etc. are employed by the client in a position that is audit sensitive (i.e., internal
auditor, cashier, accounting supervisor, etc.).
Choice “A” is incorrect because the tickets will probably be considered a token gift, and
receipt of a token gift does not impair independence.
Choice “B” is incorrect because such an indirect ownership interest will not be deemed to
affect independence.
Choice “C” is incorrect because a friend’s relationship to the audit client does not affect
independence.

Question 16

On June 1, Year 1, a CPA obtained a $100,000 personal loan from a financial institution
client for whom the CPA provided compilation services. The loan was fully secured and
considered material to the CPA’s net worth. The CPA paid the loan in full on December 31 ,
Year 1. On April 3, Year 2, the client asked the CPA to audit the client’s financial statements
for the year ended December 31 , Year 2. Is the CPA considered independent with respect to
the audit of the client’s December 31, Year 2, financial statements?
A. Yes , because the loan was fully secured.
B. Yes , because the CPA was not required to be independent at the time the loan was granted.
C. No, because the CPA had a loan with the client during the period of a professional
engagement.
D. No, because the CPA had a loan with the client during the period covered by the financial
statements.

Answer 16

Explanation
Choice “B” is correct. A member’s independence is impaired if a member has a loan with a
client and that loan is preferential in relationship to “other borrowers.” Since this loan was
fully secured and there was no indication of a “preference,” it appears to be in the ordinary
course of business. Furthermore, the CPA was no longer a debtor of the financial institution
at the time of the audit engagement. A CPA must be independent when providing auditing
and attestation services, not compilation services.
Choice “A” is incorrect. The mere fact that the loan was secured would not itself make the
CPA independent if the loan were outstanding during the engagement.
Choice “C” is incorrect because the loan was paid off before the audit engagement began;
the CPA need not be independent while rendering compilation services.
Choice “D” is incorrect. The fact that the CPA had a loan with the client during the period
covered in the client’s financial statements itself does not impair independence .

Question 17

Which of the following areas of professional responsibility should be observed by a CPA not
in public practice?
    Objective  Independent
A. Yes             Yes
B. Yes             No
C. No             Yes
D. No             No

Answer 17

Explanation
Choice “B” is correct. A CPA must always be objective ; however, a CPA need not be
independent, except when engaged in public practice.
Choices “A”, “C”, and “D” are incorrect, per the above .

Question 18

According to the AICPA Code of Professional Conduct, in which of the following
circumstances may a CPA serve on a company’s board of directors?

A. The CPA audits a bank to which the company has applied for financing , and board approval
is required for said financing to occur.

B. The CPA is asked by the company to test the internal controls of the company and offers
compensation to the CPA for said services.

C. The CPA does not audit the company and has no other business connection with the
company.

D. The CPA performs attestation services for a nonpublic company.

Answer 18

Choice “C” is correct. According to the Code of Professional Conduct, a CPA may only serve
on the board of directors when the CPA does not audit the company and has no other
business connections with the company. A CPA’s independence is impaired by business
relationships with its client, including service on the client’s board of directors .

Choice “A” is incorrect. According to the Code of Professional Conduct, a CPA may not serve
on a company’s board of directors if the CPA has any business connection with the company.
The CPA would have a business connection with the company if the CPA audited a bank to
which the company has applied for financing, and board approval is required for the financing
to occur.

Choice “B” is incorrect. An auditor must be independent to perform any attestation service,
including testing internal controls. A CPA’s independence is impaired by business
relationships with its client, including service on the client’s board of directors.

Choice “D” is incorrect. An auditor must be independent to perform any attestation service,
whether the client is public or nonpublic. A CPA’s independence is impaired by business
relationships with its client, including service on the client’s board of directors.

Question 18

Smith, CPA, is a partner of Johnson Accounting Firm. Johnson audited the books of
Hometown Bank. Smith’s independence would be impaired under which of the following
circumstances?
A. Smith is a director of Hometown Bank.
B. Smith has a collateralized automobile loan with Hometown Bank.
C. Smith had an account with Hometown Bank two years ago.
D. Smith and a Hometown Bank board member belong to the same church.
.

Answer 18

Explanation
Choice “A” is correct. Independence is impaired by business relationships with the client,
including acting as a director of the client.
Choice “B” is incorrect. Independence is not impaired by a fully collateralized car loan .
Choice “C” is incorrect. Independence is not impaired by an account that a member had with
the client in prior years . Additionally, independence is not impaired by an existing bank
account that is fully insured by the government.
Choice “D” is incorrect. Independence is not impaired because a member and the board
member of a client belong to the same church

Question 19

A CPA audits the financial statements of a client. The CPA has also been asked to perform
bookkeeping functions for the client. Under the AICPA Code of Professional Conduct, which
of the following activities would impair the CPA’s independence with respect to the client?
A. The CPA records transactions in accordance with classifications determined by
management.
B. The CPA prepares financial statements from a trial balance provided by management.
C. The CPA posts adjusting journal entries prepared by management to the trial balance.
D. The CPA authorizes client transactions and reports them to management.

Answer 19

Explanation
Choice “D” is correct. Examples of activities with an attestation client that impair
independence would include bookkeeping activities that include authorizing, executing or
consummating a transaction on behalf of a client or preparing source documents or
originating data (e .g., purchase orders) .
Choice “A” is incorrect. As long as the CPA was following management’s orders and not using
any of their own judgment or decisions about how to record something, this would not impair
the CPA’s independence.
Choice “B” is incorrect. This scenario represents a compilation , which would not impair the
CPAs independence.
Choice “C” is incorrect. As long as the CPA was not involved with the actual development of
the adjusting entry, this would not impair the CPA’s independence .

Question 20

Which of the following statements best explains why the CPA profession has found it
essential to promulgate ethical standards and to establish means for ensuring their
observance?
A. A distinguishing mark of a profession is its acceptance of responsibility to the public .
B. A requirement for a profession is to establish ethical standards that stress primary
responsibility to clients and colleagues.
C. Ethical standards that emphasize excellence in performance over material rewards establish
a reputation for competence and character.
D. Vigorous enforcement of an established code of ethics is the best way to prevent
unscrupulous acts .

Answer 20

Explanation
Choice “A” is correct. A distinguishing mark of a profession is its acceptance of responsibility
to the public.

Question 21

Which of the following is a correct statement about the circumstances under which a CPA firm
may or may not disclose the names of its clients without the clients’ express permission?
A. A CPA firm may disclose this information if the practice is limited to bankruptcy matters, so
that prospective clients with similar concerns will be able to contact current clients.
B. A CPA firm may disclose this information if the practice is limited to performing asset
valuations in anticipation of mergers and acquisitions.
C. A CPA firm may disclose this information unless disclosure would suggest that the client
may be experiencing financial difficulties .
D. A CPA firm may not disclose this information because the identity of its clients is
confidential information.

Answer 21

Explanation
Choice “C” is correct. An ethics ruling related to the Confidential Client Information Rule
states that it is permissible for a member to disclose the name of a client without the client’s
consent unless the disclosure of the client’s name results in the release of confidential
information. The specific example given in the ethics ruling states that if a member’s practice
is limited to bankruptcy matters, the disclosure of a client’s name suggests that the client may
be experiencing financial difficulties, which could be confidential client information.
Confidential client information cannot be disclosed without the client’s consent.

Question 22

Which of the following actions by a CPA most likely violates the profession’s ethical
standards?
A. Using a records-retention agency to store confidential client records.
B. Retaining client records after the client has demanded their return .
C. Arranging with a financial institution to collect notes issued by a client in payment of fees
due.
D. Compiling the financial statements of a client that employed the CPA’s spouse as a
bookkeeper.

Answer 22

Choice “B” is correct. Failure to return records to a client after the client makes a demand is
considered to be an act discreditable to the profession, and as such violates the profession’s
ethical standards.
Choice “A” is incorrect. There is no prohibition against using a records-retention agency to
store confidential client records .
Choice “C” is incorrect. Arranging with a financial institution to collect notes issued by a client
in payment of fees due does not violate the profession’s ethical standards.
Choice “D” is incorrect. A compilation of financial statements does not require the auditor to
be independent (although the lack of independence should be disclosed). Although this
engagement poses a familiarity threat, the firm may have implemented appropriate
safeguards to bring the threat to an acceptable level.

Question 23

Which of the following would be acceptable for a CPA firm?
A. Designating itself as CPAs when not all of its owners are CPAs.
B. Using a CPA partnership name that includes the names of past owners .
C. Designating itself as “Members of the AICPA” when not all CPA owners are members.
D. Continuing to use a partnership name five years after becoming a sole practitioner.

Answer 23

Explanation
Choice “B” is correct. It is acceptable to use the names of one or more past owners.
Choice “A” is incorrect. A firm may not designate itself as CPAs when not all of its owners are
CPAs.
Choice “C” is incorrect. A firm may not designate itself as “Members of the AICPA” when not
all CPA owners are members.
Choice “D” is incorrect. A firm may not continue to use a partnership name for more than two
years after becoming a sole practitioner.

Question 23

Under the ethical standards of the profession, which of the following business relationships
would generally not impair an auditor’s independence?
A. Promoter of a client’s securities.
B. Member of a client’s board of directors.
C. Client’s general counsel.
D. Advisor to a client’s board of trustees.

Answer 23

Explanation
Choice “D” is correct. The Independence Rule of the Code of Conduct requires that members
be independent in audits and attestation services. Independence is impaired if an auditor is
an employee of an audit client or is able to make management decisions on behalf of an
audit client. An advisor of an audit client’s board of directors is not an employee, nor is the
advisor able to make management decisions for the audit client. The advisor does not make
decisions, the advisor simply gives advice that the client is free to accept or reject.
Choice “A” is incorrect. A promoter of the audit client’s securities has a direct relationship
with the client. Being a promoter constitutes a business relationship that would impair
independence.
Choice “B” is incorrect. A member of the board of directors of the audit client is able to make
management decisions for the client. Being a member of the board constitutes a business
relationship that would impair independence.
Choice “C” is incorrect. A client’s general counsel is an employee. Acting as general counsel
constitutes a business relationship that would impair independence.

Question 24

According to the standards of the profession, which of the following activities would most
likely not impair a CPA’s independence?
A. Providing extensive advisory services for a client.
B. Contracting with a client to supervise the client’s office personnel.
C. Signing a client’s checks in emergency situations .
D. Accepting a luxurious gift from a client.

Answer 24

Explanation
Choice “A” is correct. The CPA’s role here is merely as an advisor.
Choice “B” is incorrect. Supervising personnel is a management function and would impair
independence.
Choice “C” is incorrect. Signing a client’s check, even in emergency situations, is a
management function and would impair independence.
Choice “D” is incorrect. Accepting more than a token gift from a client impairs independence.

Question 26

Which of the following reports may be issued only by an accountant who is independent of a
client?
A. Standard report on an examination of a financial forecast.
B. Report on consulting services.
C. Compilation report on historical financial statements.
D. Compilation report on a financial projection.

Answer 26

Explanation
Choice “A” is correct. The accountant must be independent to issue a standard report on an
examination of a financial forecast.
Choice “B” is incorrect. A member need not be independent to issue a report on consulting
services.
Choice “C” is incorrect. It has been ruled that a member can issue a historic compilation
report even though the accountant lacks independence, but the lack of independence must
be disclosed .
Choice “D” is incorrect. An accountant can issue compilations even though the accountant is
not independent, but the lack of independence must be disclosed.

Question 27

A violation of the profession’s ethical standards most likely would have occurred when a CPA:
A. Issued an unqualified opinion on the Year 2 financial statements when fees for the Year 1
audit were unpaid.
B. Recommended a controller’s position description with candidate specifications to an audit
client.
C. Purchased a CPA firm’s practice of monthly write-ups for a percentage of fees to be received
over a three-year period.
D. Made arrangements with a financial institution to collect notes issued by a client in payment
of fees due for the current year’s audit.

Answer 27

Explanation
Choice “A” is correct. Independence of the member’s firm may be impaired if more than one
year’s fees due from a client remain unpaid. Such amounts take on some of the
characteristics of a loan, and it may appear that the practitioner is providing working capital
for the client.
Choice “B” is incorrect. CPAs often make recommendations for a controller’s position
description as a management advisory service.
Choice “C” is incorrect. Purchasing a CPA firm’s practice based on a percentage of fees is a
legitimate method of pricing the business. It should not be confused with a contingent fee.
Choice “D” is incorrect. Making arrangements with a financial institution to collect notes
issued by a client in payment of fees due is a business arrangement. It is not a conflict of
interest because there is no direct financial interest in the company.

Question 27

The AICPA Code of Professional Conduct's general standards include all of the following
except:
A. Due professional care.
B. Sufficient relevant data.
C. Planning and supervision.
D. Internal control.

Answer 27

Explanation
Choice “D” is correct. The AICPA Code of Professional Conduct’s general standards include
professional competence, due professional care , planning and supervision, and sufficient
relevant data. Internal control is not one of the general standards.
Choices “A”, “B”, and “C” are incorrect, based on the above explanation

Question 28

According to the ethical standards of the profession, a CPA’s independence would most likely
be impaired if the CPA:
A. Accepted any gift from a client.
B. Became a member of a trade association that is a client.
C. Contracted with a client to supervise the client’s office personnel.
D. Served, with a client bank, as a co-fiduciary of an estate or trust.

Answer 28

Explanation
Choice “C” is correct. With regard to business relationships, independence is impaired if the
member is an employee of an attestation client or is able to make management decisions on
behalf of the client. Independence would, therefore, be impaired if a CPA contracted with the
client to supervise the client’s office personnel (e.g., in the performance of normal recurring
activities).
Choice “A” is incorrect. Independence is impaired only by acceptance of more than a token
gift. This answer choice indicates that ANY gift would impair independence.
Choice “B” is incorrect. Membership in a trade organization that is a client would not cause
independence to be impaired unless the CPA served in a management capacity of the trade
organization.
Choice “D” is incorrect. Independence is not impaired if a CPA serves as a co-trustee of an
estate or trust with a client bank. The CPA is not making management decisions for the client
in this case. The CPA is simply making management decisions for the estate or trust along
with the client bank.