Question

On June 1, 20X8, a CPA obtained a $100,000 personal loan from a financial institution for whom the CPA provided compilation services....Is the CPA considered independent with respect to the audit of the client's December 31, 20X9 financial statements?

Answer 1

A CPA is generally not considered independent for an audit of a client's financial statements if there is an outstanding loan between them, unless the loan has been paid in full or meets certain AICPA exceptions.

Step-by-step explanation:

The question pertains to a CPA's independence with respect to the audit of a client's financial statements, in light of having obtained a personal loan. The AICPA Code of Professional Conduct outlines scenarios where a CPA's independence is considered impaired.

Under these rules, a CPA would not be considered independent if the loan was not paid off in full by the date of the audit because a loan can be seen as a financial interest in the client, which may affect the objectiveness and impartiality required during an audit. However, if the loan has been paid in full or falls under one of the exceptions detailed by the AICPA regarding loans between CPAs and their clients, the CPA may be considered independent.