In Which of the Following Circumstances Would a CPA Who

question 27

Multiple Choice

In which of the following circumstances would a CPA who audits XM Corporation lack independence?

• A)The CPA and XM's president are both on the board of directors of COD Corporation.
• B)The CPA and XM's president each owns 25 percent of FOB Corporation, a closely-held company.
• C)The CPA has an automobile loan from XM, which is a savings and loan organization and the loan is collateralized by the automobile.
• D)The CPA reduced XM's usual audit fee by 40 percent because XM's financial condition was unfavorable.

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Definitions:

Cost of Goods Sold

The immediate expenses linked to the creation of a company's sold products, encompassing both the costs of materials and labor.

Net Sales

Total revenue from sales of goods or services, less returns, allowances for damaged goods, and discounts.

Operating Expense

Expenses incurred during normal business operations, such as rent, utilities, and payroll, excluding costs associated with the production of goods sold.

Administrative Expenses

Expenses related to the general operation of a business, such as salaries of non-sales personnel, office supplies, and rent.