American Institute of Certified Public Accountants (AICPA) Practice Exam

In what scenario is independence generally not impaired in a CPA's engagement?

1. When the CPA has a financial interest in the client

2. When the CPA is using client's payroll records

3. When transactions are executed correctly

4. When the CPA's partner is the client’s officer

The correct answer is: When transactions are executed correctly

Independence is a fundamental principle for CPAs, ensuring that their judgment and decisions remain impartial and unbiased. The scenario where independence is generally not impaired is when transactions are executed correctly. This implies that even if a CPA is involved in the audit or review of transactions, as long as those transactions are conducted properly and there are no conflicts of interest or undue influence, the CPA's independence remains intact. In this context, the execution of transactions correctly means adhering to regulatory standards and accurate representation of financial activities. Therefore, it reflects that the CPA can maintain objectivity since their role in the audit is limited to evaluating the processes and results without having a personal stake in the outcomes of those transactions. Other options involve scenarios that typically introduce conflicts of interest or biases. For example, having a financial interest in the client compromises the CPA’s objectivity and can lead to a lack of independence. Similarly, if a CPA’s partner is an officer of the client, this close relationship creates a potential bias due to personal connections. Using the client’s payroll records could present challenges to independence if the CPA is involved in the processing of those records, leading to potential biases or conflicts of interest. In summary, conducting transactions correctly reflects adherence to ethical standards and practices that safeguard independence