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Giridhar
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Posted: 01 Apr 2009 at 05:59 \| IP Logged

Rule 101-8 of AICPA ethics on Independence, independence is impaired in the following three situations

1. CPA has material interest in a non client. Client investor has a material interest in non client.

2. CPA has material interest in a non client. Non client is a immaterial investor in client

3. CPA excersises significant influence on non client. Non client invests in client ( immaterial investment)

My questions are

1. CPA through material investment in non client and client through material investment in non client are indirectly related. Hence independence is impaired. No issues on this.

2. How is independence impaired in this case? Non client is a immaterial investor in client

3. HOw is independence impaired in this case. Non client is a immaterial investory in client

Please clarify

Giridhar CPA

Giridhar
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Posted: 03 Apr 2009 at 03:05 \| IP Logged

Can someone revert on my query?

See the query posted on April 1, on CPA independence 101-08

StartStrong
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Posted: 03 Apr 2009 at 14:23 \| IP Logged

See: http://www.aicpa.org/about/code/et_101.html

Then search "101-08"

"Where a nonclient investee is material to a client
investor, any direct or material indirect financial
interest of a covered member in the nonclient investee
would be considered to impair independence with respect
to the client investor. If the nonclient investee is
immaterial to the client investor, a covered member's
material investment in the nonclient investee would
cause an impairment of independence."

In situations 2 and 3, the CPA has a material
financial interest or substantial amount of influence on
the non-client. Under these circumstances, the CPA will
*not be independent* of the client if that nonclient
(with whom the CPA has a material interest/influence)
has ANY indirect financial interest in the client.

The other situation arises when the nonclient has a
*material* interest in the client. In that case, the
CPA's independence can now be impaired in *two* ways:

(1) Any indirect financial interest in the nonclient
(who has a material interest in the client)
(2) Of course, any material financial interest in the
non-client.

---------------
Everything in italics is solely my interpretation of
Rule 101. The quoted passage is a verbatim passage from
101-8.

Giridhar
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Posted: 04 Apr 2009 at 00:03 \| IP Logged

Start Strong

Thanks for your response. I appreciate it.

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