American Institute of Certified Public Accountants (AICPA) Practice Exam

Is it permissible for a CPA to have a loan from a client without impairing independence?

1. Yes, as long as it is material

2. No, any loan impairs independence

3. Only if it is disclosed

4. Yes, if it is immaterial

The correct answer is: Yes, if it is immaterial

A CPA can indeed have a loan from a client without impairing independence if the loan is considered immaterial. Independence is a fundamental principle for CPAs, especially when providing assurance services. The AICPA has established guidelines that differentiate between material and immaterial relationships. When a loan is immaterial, it is viewed as not impacting the CPA's objectivity or the perception of independence by the public. Immaterial loans are generally considered to have a minimal influence on the decision-making or judgment of the CPA. Therefore, under certain thresholds defined by professional standards, having an immaterial loan from a client does not breach the necessary independence requirements. In contrast, material loans are more likely to pose a significant threat to independence, as the financial stake involved could influence the CPA's professional judgment. Additionally, disclosing a loan does not mitigate the independence threat if the loan is material, and any loan could impair independence regardless of disclosure, reinforcing the importance of evaluating the materiality of the relationship.