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

Which situation would not impair a CPA's independence?

1. The CPA has a fully insured checking account at a client’s bank

2. The CPA has a financial interest held in a blind trust

3. The CPA is involved in litigation with an audit client

4. The CPA receives a direct loan from an audit client

The correct answer is: The CPA has a fully insured checking account at a client’s bank

The situation where a CPA has a fully insured checking account at a client’s bank does not impair independence because the account is fully insured, which means that in the event of a bank failure, the CPA would not lose his or her funds. This arrangement is considered a minimal risk that does not influence the CPA's professional judgment or threaten independence. In contrast, options such as being involved in litigation with an audit client, receiving a direct loan from an audit client, or having a financial interest in an investment that is not publicly traded all create potential conflicts of interest or financial dependencies that could compromise the objective judgment required for a CPA’s work. Specifically, these situations could create biases or obligations that impair the CPA's ability to act independently and objectively when serving the client. Therefore, the fully insured checking account is regarded as a safe financial relationship that does not affect the CPA's independence.