Question

Under which of the following circumstances would the independence of a CPA be considered

impaired if the CPA, who also is an attorney, serves as auditor and provides legal services to the same
client?
A. When the CPA, as legal agent, consummates a business acquisition for the client.
B. When the CPA's audit fees and legal fees are not billed separately.
C. When the CPA uses legal expertise to research a question of income tax law.
D. When the legal services consist of an analysis of the terms of an existing lease agreement.

Answer 1

The CPA's independence would be considered impaired if they consummate a business acquisition for the client, as it involves making management decisions. Independence is not impaired by not billing audit and legal fees separately, using legal expertise for tax research, or analyzing an existing lease agreement, unless it involves advocacy in negotiations or disputes.

Step-by-step explanation:

The independence of a CPA (Certified Public Accountant) would be considered impaired under certain conditions when providing both auditing and legal services to the same client due to potential conflicts of interest. Specifically:

Thus, the circumstances under which a CPA's independence would be considered impaired are when the services provided are akin to those of making management decisions or representing the client in negotiations or disputes, which compromises the CPA's objectivity in an audit scenario.