American Institute of Certified Public Accountants (AICPA) Practice Exam

Can a partner serve as a director of a local charity and still maintain independence?

1. Yes, for charities that receive funds

2. No, it always impairs independence

3. Only if there are no direct financial ties

4. It depends on the charity's financial health

The correct answer is: Yes, for charities that receive funds

When considering the independence of a partner serving as a director of a local charity, it is important to acknowledge that independence is generally related to any financial connections or relationships that could impair objectivity. In many situations, a partner can indeed maintain independence while serving in such a capacity, especially in cases where the charity does not have a significant financial relationship with the firm. The option stating that yes, for charities that receive funds, outlines a specific context regarding the type of charity. If the funds received by the charity do not come to the partner’s firm, or if the partner does not directly benefit from the charity’s financial transactions, their service on the board would not necessarily impair their independence. It’s crucial that the partner remains objective, and their role in the charity does not lead to a conflict of interest with their professional responsibilities. Other considerations, such as the nature of the charity's funding sources or the financial relationship between the charity and the firm, can be relevant. However, within the scope of charitable organizations that do not have direct financial ties to the partner's firm, independence can be preserved. This nuance is essential for understanding independence in professional accounting standards regarding charitable involvement.