Question

Please provide answers next to the questions provided. Most questions can be answered with 3 or less sentences, but please do not exceed 5 sentences.

Describe how you would determine if a financial interest would violate the independence rule.

In what ways is Sarbanes-Oxley Act stricter on independence than the rules from the AICPA?

Answer 1

A CPA would have an indirect financial interest in an audit client if he or she had an investment in another entity which, in turn, had an interest in the audit client. Examples might include (1) an investment in a mutual fund which owns stock of the audit client, (2) investment in another corporation which owns securities of the audit client, and (3) ownership of shares in a bank which has extended loans to the client company.

The Code of Professional Conduct only prohibits those indirect financial interests in audit clients that are material in relation to the CPA's net worth.