American Institute of Certified Public Accountants (AICPA) Practice Exam

Does having a financial interest in an employee benefit plan impair an auditor's independence?

1. Yes, it always does

2. No, it does not impair independence

3. Only if the plan is large

4. Only if the financial interest is substantial

The correct answer is: No, it does not impair independence

When evaluating the impact of having a financial interest in an employee benefit plan on an auditor's independence, the key consideration is the nature of that interest. Generally, a financial interest in an employee benefit plan does not automatically impair an auditor's independence. This is because the independence rules established by the AICPA are designed to account for the type of relationships and interests that may affect an auditor's objectivity and professional skepticism. Having an interest in a typical employee benefit plan—such as a retirement plan or health insurance plan—does not compromise independence as long as the interest is considered to be in the normal course of employment and is not significant enough to influence the auditor’s judgment regarding the financial statements of the audited entity. Furthermore, the independence rules allow for certain financial interests if they are not material or do not result in the auditor being in a position to influence the outcomes of audits for their clients adversely. Therefore, the scenario presented in the question supports the view that possessing an ordinary financial interest in an employee benefit plan is generally not perceived as compromising to an auditor's independence. This reflects a nuanced understanding of independence that focuses on the materiality and potential conflicts of interest inherent in the specific financial relationships involved.