Independence and ethics
The Independence Question
Spot the threat, decide if it impairs, then apply the safeguard or rule.
How the exam words it
- -The stem describes a financial interest, family relationship, service, or long association with a client.
- -It asks whether independence is impaired, or names a threat category to identify.
- -It contrasts a direct interest with an indirect one.
- -It involves SOX prohibited services, covered members, or the AICPA conceptual framework.
The playbook
- 1A direct financial interest impairs regardless of materiality, an indirect interest impairs only if material to the CPA.
- 2Identify covered members (the engagement team plus partners in the lead partner's office) and the threat category at play.
- 3For issuers, SOX prohibits most non-audit services but permits tax services with audit committee pre-approval, apply safeguards for nonissuers.
The trap
Treating an indirect interest as automatically impairing, or a direct interest as fine because it is small. Direct impairs regardless of amount, indirect only if material.
How the exam varies it
The same pattern, re-skinned along these axes:
Financial interest, family relationship, non-audit service, or long associationDirect versus indirect, material versus immaterialIssuer (SOX and PCAOB) versus nonissuer (AICPA framework)
Drill this pattern
8 questions of The Independence Question from across the AUD topics. Clear it by getting 5 right with a streak of 3.