American Institute of Certified Public Accountants (AICPA) Practice Exam

Is a relationship that appears to impair a member's objectivity allowable under independence rules?

1. No, it is always prohibited.

2. Yes, if the member is unaware of the relationship.

3. Yes, but it may raise concerns about independence.

4. No, but it is subject to materiality considerations.

The correct answer is: Yes, but it may raise concerns about independence.

The correct answer underscores that while a relationship that appears to impair a member's objectivity can occur, it does not automatically mean that independence is compromised. This option recognizes that even if such a relationship exists, it may still be permissible under certain circumstances. However, it is crucial to understand that this situation might raise concerns regarding the member's independence, leading to a need for careful consideration and evaluation of the relationship's impact. In this context, "appears to impair" refers to situations where the relationship may create an appearance of a conflict of interest, which is a fundamental aspect of the independence rules. Even if the member maintains objectivity, the perception among stakeholders could be different, potentially affecting trust in the financial reporting process. Therefore, transparency and the possibility of disclosure are important in managing these types of relationships. The answers that suggest it is always prohibited or contingent on unawareness overlook the complexity of professional judgments and the nuanced evaluations that must be made regarding independence. Additionally, referencing materiality does not sufficiently capture the essence of the independence standards. The focus should be on the ability of the professional to remain objective and whether stakeholders might perceive a lack of independence based on the relationship.