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

Which situation will NOT impair independence for audits of employee benefit plans?

1. Audit firm maintains financial records of the plan

2. Audit firm has a material indirect interest in the plan sponsor

3. Engagement partner serves on the board of the plan sponsor

4. An actuary employed by the audit firm provides services

The correct answer is: An actuary employed by the audit firm provides services

The scenario involving an actuary employed by the audit firm providing services does not impair independence for audits of employee benefit plans. This is because the actuary's role typically involves providing specialized technical assistance related to the plan's valuation, funding, or financial reporting, without compromising the audit firm's objectivity or integrity in conducting the audit. Independence is primarily compromised when there are direct financial interests, management roles, or conflicting relationships with the entities being audited. While actuarial work implies a connection to the plan, it is permissible as long as the audit firm has established safeguards to ensure that the audit engagement itself remains impartial. The key factor is that the actuary does not participate in decisions related to the audit process or hold any management responsibility within the plan, thereby preserving the audit firm's independence in the context of the audit. In contrast, maintaining financial records of the plan can lead to self-review threats, where the audit firm would be auditing its own work. Having a material indirect interest in the plan sponsor threatens independence due to a potential conflict of interest arising from financial ties. When an engagement partner serves on the board of the plan sponsor, this poses a direct threat to independence, as it involves decision-making authority and influence over the entity being audited, thus impair