Auditing and Attestation- Certified Public Accountant (CPA) Practice Exam -

Which situation does not necessarily impair a CPA's independence?

1. The CPA has temporary financial interest in an audit client

2. The CPA received a bonus from the audit client

3. The CPA maintains a fully collateralized loan from the client

4. The CPA is a board member at another organization along with the client

The correct answer is: The CPA maintains a fully collateralized loan from the client

The situation concerning a fully collateralized loan from the audit client does not necessarily impair a CPA's independence because the loan is fully secured by collateral. The CPA is generally considered to maintain independence as long as the loan does not create a risk of loss or influence the financial statement audit. Under the professional standards, fully collateralized loans do not typically present an inherent conflict of interest or potential for an adverse interest with the audit client, assuming all terms are normal and market-competitive. In contrast, a temporary financial interest in an audit client creates a direct financial interest that could influence the CPA's judgment. Similarly, receiving a bonus from an audit client introduces a financial incentive that can compromise the CPA’s objectivity. Serving as a board member at another organization alongside a client could lead to a conflict of interest or perception issue that may impair independence, as the CPA might be perceived as biased toward the interests of that organization in relation to the audit client. Thus, in comparison to these scenarios, the fully collateralized loan is seen as a more acceptable situation regarding maintaining independence.