American Institute of Certified Public Accountants (AICPA) Practice Exam

Is a CPA's independence impaired by serving on a citizens' committee studying a county's financial status if they audit that county?

1. Yes

2. No

3. It depends on the committee's purpose

4. Only if compensated for service

The correct answer is: Yes

Independence is a fundamental principle for CPAs, especially when it comes to performing audits. When a CPA serves on a citizens' committee that is studying the financial status of a county they audit, this involvement can create a conflict of interest. Being part of such a committee may lead to situations where the CPA could be perceived as biased or lacking objectivity since their role may involve influencing financial decisions or policies that could directly affect the audit process. The appearance of impartiality is crucial in maintaining public trust in financial reporting and audit findings. Thus, participation in the committee may compromise the CPA's independence in both fact and appearance. While factors like compensation or the specific purpose of the committee could theoretically affect the assessment of independence, the overwhelming consideration is the direct link between the CPA's audit responsibilities and their participation in the committee. Therefore, service on the committee inherently raises questions about the auditor's ability to remain independent, and thus it is deemed to impair independence outright.