Area I: Ethics & General Principles — CPA Practice Question 03

How to approach this question

Apply the 'Conceptual Framework for Independence' in the Yellow Book. Identify the specific threat (Self-Review).

Full Answer

B.Independence is impaired because preparing financial statements in their entirety creates a significant self-review threat that cannot be reduced to an acceptable level.✓ Correct

Independence is impaired because preparing financial statements in their entirety creates a significant self-review threat that cannot be reduced to an acceptable level.

Under GAO Government Auditing Standards (Yellow Book), preparing financial statements in their entirety from a client-provided trial balance creates a significant self-review threat. The GAO has indicated that in many cases, this threat is so significant that no safeguards can reduce it to an acceptable level, effectively impairing independence.

Common mistakes

Applying AICPA standards (which allow this with SKE oversight) instead of the stricter GAO standards.

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Full Answer

Common mistakes

Practice the full CPA AUD Practice Exam 5

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