Question

A CPA sole practitioner purchased stock in a client corporation and placed it in a trust as an educational fund for the CPA's minor child. The trust securities were not material to the CPA but were material to the child's personal net worth. Would the independence of the CPA be considered to be impaired with respect to the client? Group of answer choices No, because the CPA does not have a material indirect financial interest in the client. Yes, because the stock is a direct financial interest. No, because the CPA does not have a direct financial interest in the client. Yes, because the stock is an indirect financial interest that is material to the CPA's child.

Answer 1

Answer:

Yes, because the stock is a direct financial interest.

Explanation:

The principals of the AICPA Code of Professional Conduct contains the responsibilities which are to exercise sensitive professional and moral judgment, in terms of the Public Interest to always honor the public trust and perform responsibilities with the highest sense of integrity.

The 3 Parts of the AICPA code of conduct. This includes:

(1) Members in public practice

(2) Members in business

(3) Other members

In accounting, code of conduct is important as it makes individuals to accept a high degree of responsibility toward the public.

Thd independence of a covered member is impaired when:

A. The covered member has a direct financial interest in a client

B. The covered member has a material indirect financial interest in the client

Direct Financial Interest

This is simply known as the ownership interests that is directly held in a client. An example is stock ownership, even if owned in a blind trust etc.