American Institute of Certified Public Accountants (AICPA) Practice Exam

If a partner of a CPA firm serves on the board of a nonprofit club, how does it affect their independence?

1. Independence is preserved

2. Independence is impaired

3. It depends on the roles in the board

4. Independence is enhanced

The correct answer is: Independence is impaired

When a partner of a CPA firm serves on the board of a nonprofit club, their independence is considered impaired due to the potential for conflicts of interest. Independence in the context of auditing and attestation services requires that the auditor remain objective and free from any relationships that could influence their professional judgment. Serving on the board may lead to situations where the partner has a vested interest in the decisions made by the nonprofit, particularly if there are financial transactions involved between the CPA firm and the nonprofit. This relationship can jeopardize the impartiality expected of a CPA when conducting audits or providing assurance services to clients. Additionally, for services that are closely associated with the nonprofit, the partner’s involvement could be perceived as creating a lack of objectivity, as their roles as both a board member and a CPA could create divided loyalties. Professional standards emphasize that any external roles that a CPA might hold should not compromise the firm's independence, and serving on a board, even if it is a nonprofit, poses such a risk. This understanding of the implications of dual roles is critical for maintaining the integrity of the audit process.