CPA Exam — AUDEthics, Professional Responsibilities, and General PrinciplesEasy
A CPA firm is performing an audit for a publicly traded client. The engagement partner's spouse is employed by the client in a non-key position, specifically as a marketing assistant, and has no involvement in accounting functions or financial reporting. The spouse's compensation is not material to the spouse's or the partner's net worth. Does this situation impair the CPA firm's independence?
- AYes, because the spouse is employed by the client, regardless of the position's nature or materiality.
- BNo, as long as the audit committee is informed and approves the engagement.
- CNo, because the spouse's position is non-key and the compensation is immaterial, and the spouse does not influence financial reporting.
- DYes, because any employment relationship of a covered member's spouse with an audit client impairs independence.
Show answer & explanationAnswer & explanation
Correct answer: C. No, because the spouse's position is non-key and the compensation is immaterial, and the spouse does not influence financial reporting.
Under AICPA rules, the employment of a covered member's spouse by an audit client generally impairs independence if the spouse holds a key position or has a material financial interest. If the position is non-key, does not involve accounting or financial reporting oversight, and compensation is immaterial, independence is not impaired.
Why the other options are wrong
- A. This statement is incorrect; the nature of the position and materiality of compensation are critical factors.
- B. Audit committee approval does not overcome a direct impairment of independence; however, in this case, no impairment exists to be overcome.
- D. This statement is too broad; specific conditions apply to spousal employment.
Spousal Employment and Independence
The employment of a covered member's spouse by an audit client may impair independence, depending on the spouse's position, responsibilities, and the materiality of their compensation.
- Key position always impairs independence.
- Non-key position may not impair if no influence on financial reporting.
- Materiality of compensation is a factor for non-key positions.
Memory trick: Family ties can bind, but some are fine.