Question

All of the following are examples of activities that can impair a CPA's appearance of independence, EXCEPT?

1) an auditor's spouse is employed by a consulting client.
2) the CPA is participating in a joint venture with an attest client.
3) an auditor's spouse has an ownership interest in an attest client.
4) an attest client is threatening litigation against the CPA.

Answer 1

the option that does NOT impair a CPA's appearance of independence, provided that there's no overlap between the consulting and attest client, is option 1: an auditor's spouse is employed by a consulting client.

Step-by-step explanation:

The question is asking which of the provided options does not impair a CPA's (Certified Public Accountant's) appearance of independence when it comes to audit and attest services. Independence is a key principle in the auditing and accounting professions. It requires that auditors must be free from conflicts of interest and not be in positions where their decisions could be biased.

Looking at the options:

1. An auditor's spouse employed by a consulting client could impair independence if the consulting client had a relationship with the attest client, but if there is no such relationship, the appearance of independence may not be affected.
2. Participation in a joint venture with an attest client would definitely impair the appearance of independence, as this would create a mutual financial interest and potential for bias in the auditor's judgement.
3. Having an ownership interest in an attest client would impair the auditor's independence, as personal financial interests can influence the auditor's objectivity.
4. Threatened litigation against the CPA also impairs independence as it creates adversarial relationships which could bias the CPA.