CPA Professional Code Of Conduct Quiz - 2

Explanation
The firm's independence is not impaired because the manager does not work in the same office as the lead audit partner. The fact that the manager's spouse inherited a small amount of stock in the manufacturing company does not directly affect the independence of the audit process. As long as the manager does not have any direct involvement in the audit and the lead audit partner remains unbiased and independent, the firm's independence is not compromised.

Explanation
The firm's independence is impaired because a manager in the CPA firm obtained a mortgage from the bank during the period of the professional engagement. Even though the manager did not provide any services to the bank, the personal financial relationship between the manager and the bank creates a threat to the firm's independence. This could potentially compromise the objectivity and impartiality of the audit process, as the firm may be influenced to favor the bank due to the personal relationship.

Explanation
Yes, the CPA firm's independence would be impaired with respect to that client because the controller, who is an employee of the audit client, would be working for the CPA firm as an independent contractor. This creates a conflict of interest and could compromise the objectivity and independence of the CPA firm in conducting audits for the client.

Explanation
The CPA firm would be considered independent for accepting the audit engagement because the controller being the engagement partner's mother-in-law does not create a direct financial or personal relationship that would impair the firm's objectivity or integrity. As long as the firm can demonstrate that it will conduct the audit objectively and without any conflicts of interest, it can proceed with the engagement.

Explanation
No, the firm is not independent to perform the engagement because three firm managers, who work in a separate office, have a financial interest in the company being audited. They own 2% of the company's outstanding common stock. This financial interest could compromise the objectivity and impartiality of the audit process, as the managers may have a vested interest in the outcome of the audit. Independence is a fundamental principle in auditing to ensure the integrity and credibility of the audit opinion.

Explanation
The partner's ownership of 2% of a potential audit client does not create a significant financial interest that would impair the firm's independence. Additionally, the partner is not associated with the office performing the engagement, does not provide any services to the client, and does not have the ability to influence the engagement team. Therefore, the firm is independent to perform the audit.

Explanation
The manager serving on the board of directors of a potential review client creates a conflict of interest. Even though the manager would not be directly involved in providing services to the client and would not be located in the office performing the engagement, their position on the board could still compromise the firm's independence. This is because the manager may have access to confidential information or exert influence over the client's financial reporting. Therefore, the firm would not be considered independent to perform the review.

Explanation
The firm is independent because there is no direct financial relationship between the partner and the audit client. The partner's dependent son working as an inventory clerk for the client during the summer months does not create a conflict of interest or impair the firm's independence.