The Materiality of a Conflict of Interest Should Be Evaluated

question 32

Multiple Choice

The materiality of a conflict of interest should be evaluated from the perspective of:

• A) Whether a reasonable client would consider the conflict to be material
• B) Whether a client, acting unreasonably or reasonably, would consider the conflict to be material
• C) Whether an objective observer who is reasonably informed about the surrounding facts would conclude that a conflict of interest is material
• D) Whether the CPA subjectively, from his or her own vantage point, has concerns about two or more material interests clashing

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Definitions:

Indirect Method

A method used for the preparation of the cash flow statement which adjusts net income for changes in balance sheet accounts to calculate the cash from operating activities.

Operating Activities

These involve the primary, day-to-day actions that generate revenue and incur expenses in the normal course of business, reflected in the cash flows from operations section of the statement of cash flows.

Current Assets

Assets that are expected to be converted into cash, sold, or consumed within one year or the business’s operating cycle, whichever is longer, such as cash, inventory, and receivables.

Direct Method

In cash flow reporting, a format that presents major classes of gross cash receipts and payments, providing transparency into a company's operating cash flows.