Auditors Are Allowed to Have an Indirect Financial Interest in an Audit

question 24

True/False

Auditors are allowed to have an indirect financial interest in an audit client, such as ownership of stock in a client's company by the auditor's brother, as long as the amount of the financial interest is immaterial to the brother.

---

Definitions:

Adjusting Entries

Entries in accounting made at the period's end to assign earnings and costs to their respective actual periods.

Income Statement Accounts

Accounts found on the income statement, which report a company’s financial performance over a specific period, including revenues, expenses, gains, and losses.

Temporary Accounts

Accounts in accounting that are used to track transactions within a financial period, which are then transferred to permanent accounts at the end of the period.

Interest Expense

The cost incurred by an entity for borrowed funds, which may include the cost of bonds, loans, convertible debt, and lines of credit.