American Institute of Certified Public Accountants (AICPA) Practice Exam

What does the term "indirect financial interests" refer to?

1. Ownership interests held directly by the CPA.

2. Financial interests in a client held by family members.

3. Investments that are publicly traded.

4. Financial interests in clients owned by corporations.

The correct answer is: Financial interests in a client held by family members.

The term "indirect financial interests" refers to financial interests in a client held by family members. This is particularly significant in the context of ethics and independence for Certified Public Accountants (CPAs). When a CPA has a financial interest in a client, either directly or indirectly, it can create potential conflicts of interest or the appearance of a lack of independence in performing audits or other assurance services. In this scenario, if a CPA's family members have financial interests in a client, these interests can be considered indirect because they are not owned directly by the CPA. However, such interests can still affect the CPA's objectivity and integrity, as family ties can influence a CPA's judgment or create biases. Understanding this definition is vital for maintaining professional ethics, as CPAs are expected to avoid situations that might compromise their independence. Other options may touch on aspects of financial interests but do not specifically capture the nuanced implications of indirect financial interests in regard to familial relationships and ethical considerations.