A CPA Sole Practitioner Purchased Stock in a Client Corporation

question 37

Multiple Choice

A CPA sole practitioner purchased stock in a client corporation and placed it in a trust as an educational fund for the CPA's minor child. The trust securities were not material to the CPA but were material to the child's personal net worth. Would the independence of the CPA be considered to be impaired with respect to the client?

• A) Yes, because the stock is a direct financial interest.
• B) Yes, because the stock is an indirect financial interest that is material to the CPA's child.
• C) No, because the CPA does not have a direct financial interest in the client.
• D) No, because the CPA does not have a material indirect financial interest in the client.

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Definitions:

Common Size Balance Sheet

A balance sheet in which all line items are expressed as a percentage of total assets to allow for easy comparison across periods and with other companies.

Total Liabilities And Equity

The sum of all financial obligations and ownership equity of a company, representing the total sources of funds used to finance its assets.

SEC Reporting Regulations

The rules and guidelines set forth by the Securities and Exchange Commission for publicly traded companies to ensure transparency, accuracy, and fairness in financial reporting.

Accounting Procedures

Standard methods and practices used for recording, classifying, and summarizing financial transactions within an organization.