American Institute of Certified Public Accountants (AICPA) Practice Exam

In which type of engagement is CPA independence particularly important?

1. Tax preparation services.

2. Nonassurance services where reliability on a third-party assertion is critical.

3. Consulting services that do not involve financial statements.

4. Client relationship management services.

The correct answer is: Nonassurance services where reliability on a third-party assertion is critical.

Independence is a fundamental principle in the accounting profession, particularly in engagements that involve nonassurance services where reliance on a third party's assertion is critical. This is because such services may require the CPA to provide a level of credibility or reliability to the information being assessed or used by third parties. In these circumstances, the perception of independence is crucial; stakeholders must trust that the CPA’s work is objective and not influenced by any conflicting interests. Independence ensures that the CPA can impartially evaluate the assertion provided by the third party, thereby enhancing the quality and credibility of the information. In contexts like tax preparation or consulting services that do not involve financial statements, independence may still be important, but the stakes related to reliance on assertions by third parties are generally lower. Client relationship management services also do not directly engage with third-party assertions in the same way, making CPA independence less critical in those scenarios. Thus, the emphasis on maintaining independence is most pronounced in engagements where third-party assertions exist and are used by others for decision-making.