A sole practitioner wishes to invest in a corporation where their client owns 40% but the investment is not material to either party. Does this impact independence?

Independence in the context of Certified Public Accountants is primarily concerned with the appearance and reality of objectivity and impartiality in professional judgment. When considering investment relationships between a CPA and a client, the key factors usually include the nature of the investment, the level of control or influence over the entity, and the materiality of the investment to both the practitioner and the client.

In this scenario, although the practitioner is investing in a corporation where their client owns 40%, the investment is considered not material to either party. Materiality is a significant determinant because if the investment is small enough not to affect the financial statements or the decision-making of either the CPA or the client, it typically does not compromise independence. This means that the relationship does not present a threat to the impartiality expected from the CPA, as the investment does not provide the CPA with excessive influence or control over the client’s affairs, nor does it create a financial interest that could impair objectivity.

Therefore, under these circumstances, independence is maintained because the investment is not substantial enough to influence the CPA's professional behavior or judgement regarding the client's financial matters. As a result, the conclusion that independence is not impaired is supported by the concept of materiality, which indicates that a non