A partner in an accounting firm has lent money to a client's officer. When must this loan be paid to maintain independence?

Maintaining independence is a fundamental principle for accountants, particularly when it comes to their relationships with clients. In this scenario, a partner in an accounting firm has lent money to an officer of a client, which can create a potential conflict of interest and impair the firm's independence.

The correct answer indicates that the loan must be paid before the firm's acceptance of the professional engagement. This is essential because accepting a professional engagement while having a financial relationship with someone in a position of authority within the client organization can threaten the auditor's objectivity and impartiality. To preserve independence, any financial interests or debts should be resolved before the firm agrees to take on the auditing engagement. This proactive measure helps ensure that the audit process is free from any influence that may arise from the partner’s financial relationship.

By paying off the loan before engaging with the client, the firm demonstrates a commitment to maintaining the ethical standards expected in the profession, enabling a more credible and trusted auditing process.