An auditor is about to commence a recurring annual audit engagement. The continuing auditor's independence would ordinarily be considered to be impaired if the prior year's audit fee:
A)was unusually large.
B)has not been paid and will not be paid for at least twelve months.
C)has not been paid and the client has filed a voluntary petition for bankruptcy.
D)was renegotiated during the prior year audit based on the need for expanded testing.

Question

Quizplus · Accepted Answer

CB) If the prior year's audit fee has not been paid and will not be paid for at least twelve months, the auditor's independence could be considered impaired because the overdue fee could be seen as a loan to the client, which is not allowed under independence standards.C) If the client has filed for bankruptcy and the audit fee has not been paid, the auditor's independence could be considered impaired due to the financial interest in the client's ability to pay the fee, which could affect the auditor's objectivity.

An Auditor Is About to Commence a Recurring Annual Audit