Status as a "Covered Member" Is Important in Determining Independence

question 22

Multiple Choice

Status as a "covered member" is important in determining independence because CPAs who are classified as a "covered member" lack the independence to conduct an audit if:

• A) They have an indirect ownership interest in even a single share of stock outstanding in an audit client
• B) They refuse to subordinate their best judgment to the wishes of their client
• C) Their college-age, dependent child works in the client's warehouse during the summer as a shipping clerk
• D) Their sister is an attorney who works as the company's General Counsel

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Definitions:

Accounting Equation

The foundational equation of double-entry bookkeeping, stating that Assets = Liabilities + Equity, ensuring the balance sheet remains balanced.

Assets

Resources controlled by a business due to past transactions or events, from which future economic benefits are expected to flow to the entity.

Accounts Receivable

Accounts Receivable are amounts owed to a company by customers for goods or services delivered on credit, expected to be collected as cash.

Notes Payable

A written agreement to pay a specific amount to a lender at a future date, typically including interest payments, classified as a liability on the balance sheet.