A CPA Recently Was Presented with the Opportunity to Bid

question 26

Multiple Choice

A CPA recently was presented with the opportunity to bid to become the auditor for a corporation.This CPA's husband owns stock in that company.Does this CPA satisfy the independence requirement to audit this company?

• A) No, if the stock is held in a joint brokerage account
• B) No, even if the stock is held in an individual brokerage account and was purchased solely with funds earned by her husband
• C) Yes, if her husband owns a small number of shares and the corporation is publicly-traded
• D) Yes, as long as she maintains objectivity and professional skepticism in performing the audit

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Definitions:

Equilibrium Price

The market price at which the quantity of goods supplied equals the quantity of goods demanded, leading to market stability.

Positive Externality

A benefit enjoyed by a third-party as a result of an economic transaction they are not directly involved in.

Equilibrium Quantity

The amount of products or services available that matches the amount sought after at the price where supply meets demand.

Socially Optimal

A condition in which resources are allocated in the most efficient way from the perspective of society as a whole.