The Code of Professional Conduct, Rule 101 regarding independence, does not consider the following circumstances to be a lack of independence:
a.The auditor's brother-in-law's father is the controller of the client being audited.
b.A financial institution client loans the auditor money to buy a boat but does not collateralize the loan.
c.The audited firm is privately held and the auditor provides valuation and appraisal services to an audit client, the results of which are material to the financial statements.
d.The CPA firm's sole audit manager served as controller of the firm's audit client from the January, Year 1 through May, Year 5 when the manager began working with the CPA firm. The current audit period for this client is from April 1, Year 5 through March 31, Year 6.
Answer:A
Choice "A" is correct. Independence is impaired by a member, a member's spouse or dependents, or an immediate family member who holds a key position in the audit client. A brother-in-law and family of the brother-in-law are not considered to be immediate family members or close relatives. According to the Code, a close relative is defined as a parent, sibling, or nondependent child.
Choice "d" is incorrect. A CPA auditor cannot work for the client in a key position during the audit year.
Choice "c" is incorrect. Independence is impaired if valuation and appraisal services are performed, the results are material to the financial statements, and the appraisal or valuation is subject to a significant degree of subjectivity.
Choice "b" is incorrect. Fully collateralized loans made within the normal course of business, such as by a financial institution, do not impair independence.