American Institute of Certified Public Accountants (AICPA) Practice Exam

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Is there a conflict if a member advises a client to invest in a business with familial financial interest?

  1. Yes, a conflict exists

  2. No, there is no conflict

  3. Depends on the size of the investment

  4. Only if the investment is substantial

The correct answer is: Yes, a conflict exists

When a member advises a client to invest in a business where they have a familial financial interest, a conflict of interest arises due to the potential for personal gain that could influence their professional judgment. The ethical standards established by the AICPA emphasize the importance of maintaining objectivity and independence in matters related to financial advice. In this scenario, the member’s relationship with the family may lead to biased recommendations that do not fully consider the best interests of the client, potentially compromising the integrity of the financial advice. This conflict is not contingent on the amount of investment or the nature of the familial relationship, as any personal connections can muddle the advisor's objectivity. The fundamental principle is that any potential conflict, regardless of its perceived severity, should be openly disclosed and managed appropriately to maintain professional integrity and the trust of clients. Therefore, advising a client in this context necessitates careful consideration and transparency to uphold ethical standards, reinforcing the conclusion that a conflict exists.