Amember, is an audit manager at the firm of Winn & Lite, CPAs. Wu is employed by North State University (an audit client of Winn & Lite’s). Wu is contracted on a part-time, non-tenured basis and teaches intermediate accounting. He does not participate in the audit of North State University nor is he in a position to influence the audit in any way. Wu must participate in an employee benefit plan sponsored by the University but he does not make contributions beyond what is required. Which of the following is TRUE regarding the firm’s independence to the audit of North State University as it relates to Wu’s teaching position? Wu’s teaching position as described does not impair the firm’s independence. Wu’s participation in the employee benefit plan will impair the firm’s independence. Wu’s teaching position is not allowed in any capacity if the firm wants to maintain its independence with respect to the audit of North State University. None of the above statements is true.
The Correct Answer and Explanation is:
Correct Answer: Wu’s teaching position as described does not impair the firm’s independence.
Explanation
In assessing whether Wu’s teaching role at North State University (an audit client) impairs the independence of the audit firm, it is important to consider the rules and guidance issued by the AICPA’s Code of Professional Conduct, specifically regarding employment relationships with audit clients.
Wu is an audit manager at Winn & Lite, CPAs, but does not participate in the audit of North State University nor does he hold a position of influence over the audit engagement. His employment at the University is part-time, non-tenured, and limited to teaching intermediate accounting, which is generally considered a non-management, academic role.
According to AICPA Interpretation 1.275.005 under the Independence Rule (1.200.001), independence is not impaired when a covered member is employed by an attest client in a teaching position if all of the following conditions are met:
- The individual is not a covered member with respect to the client.
- The teaching position is part-time and non-management.
- The individual does not assume any audit-sensitive responsibilities, such as financial reporting or decision-making roles.
- The individual does not participate in the audit engagement.
Wu meets all these conditions. Furthermore, his required participation in the university’s employee benefit plan, to which he contributes only the minimum mandated, does not by itself impair independence, especially since he has no ability to influence the audit engagement.
Therefore, based on professional standards, Wu’s teaching position and required participation in the benefit plan do not impair the firm’s independence with respect to North State University. The firm remains independent because Wu’s role is clearly limited, poses no conflict of interest, and follows applicable ethical guidelines.
Thus, the correct and best answer is:
Wu’s teaching position as described does not impair the firm’s independence.
