Question

Kar, CPA, is a staff auditor participating in the audit engagement of Fort, Inc. Which of the following circumstances impairs Kar’s independence? a. During the period of the professional engagement, Fort gives Kar tickets to a football game worth $75. b. Kar owns stock in a corporation that Fort’s 401(k) plan also invests in. c. Kar’s friend, an employee of another local accounting firm, prepares Fort’s tax returns. d. Kar’s sibling is director of internal audit at Fort.

Answer 1

The correct answer is d. Kar’s sibling is director of internal audit at Fort. Having a close relative who is a director of internal audit at the company being audited impairs Kar's independence.

Step-by-step explanation:

The correct answer is d. Kar’s sibling is director of internal audit at Fort. Having a close relative who is a director of internal audit at the company being audited impairs Kar's independence. This is because there is a close family relationship that could compromise Kar's objectivity and ability to provide an unbiased opinion on the company's financial statements.

Options a, b, and c do not impair Kar's independence:

1. Receiving tickets to a football game may be seen as a token of appreciation from the client, but it does not have a significant impact on Kar's independence.
2. Having stock in a corporation that the client's 401(k) plan also invests in does not impair Kar's independence as long as the ownership is not substantial and does not create a financial interest in the client's affairs.
3. Having a friend who prepares the client's tax returns, as long as the friend is not involved in the audit engagement and does not have a significant influence on the financial statements, does not impair Kar's independence