Test 2 Flashcards
According to the profession’s ethical standards, a CPA would be considered independent in which of the following instances?
A.
The CPA owns an office building and the mortgage on the building is guaranteed by a client.
B.
A client leases part of an office building from the CPA, resulting in a material indirect financial interest to the CPA.
C.
The CPA belongs to a country club client in which membership requires the acquisition of a pro rata share of equity.
D.
The CPA has a material direct financial interest in a client, but transfers the interest into a blind trust.
Choice “C” is correct. Membership in a social club in which membership requirements involve acquisition of a pro rata share of equity does not impair independence because such equity is not considered to be a direct financial interest. The member, however, should not serve in any management capacity.
