Question

When a public accounting firm audits FUND-A in a mutual fund complex that has sister funds FUND-B and FUND-C, independence for the audit of FUND-A is not impaired when:

a. The firm has a direct financial interest in FUND-B
b. The firm provides bookkeeping services for FUND-C
c. The firm provides tax services to FUND-A
d. The firm also audits FUND-C

Answer 1

Auditor independence for the audit of FUND-A is not impaired when the auditing firm provides tax services to FUND-A, whereas direct financial interest in FUND-B or bookkeeping for FUND-C would impair independence.

Step-by-step explanation:

When a public accounting firm audits FUND-A in a mutual fund complex that has sister funds FUND-B and FUND-C, independence for the audit of FUND-A is not impaired when the firm provides tax services to FUND-A. This is because providing tax services to an audit client does not generally create a conflict of interest or impair auditor independence, assuming the services are not part of the audit itself and do not involve decision making on behalf of the client. In contrast, having a direct financial interest in FUND-B or providing bookkeeping services for FUND-C would impair the firm's independence, as these actions could put the firm in a position of auditing its own work or create a mutual interest with the client.