In a one-office CPA firm, if a partner has a brother who owns 26% of a company's stock, how does this affect independence?

Independence is a key principle for CPAs, particularly when providing audit and assurance services. In the situation described, the ownership of 26% of a company's stock by the partner's brother represents a significant financial interest. According to the AICPA Code of Professional Conduct and related independence rules, a CPA firm must maintain independence in both fact and appearance when engaged in an audit or similar services.

When a partner’s immediate family member, such as a brother, holds a substantial ownership percentage (in this case, 26%), it poses a potential threat to independence. This is because the financial interests of a close family member can influence the partner’s objectivity and professional judgment. The threshold of 5% ownership is often cited as a materiality guideline in many independence contexts, but a 26% interest is clearly material and significant enough to impact the CPA firm’s independence.

Therefore, the presence of this ownership interest means that the firm would not be considered independent in regard to the audit of that company. This conclusion aligns with the fundamental ethical requirement that CPAs must avoid any circumstances that might impair their objectivity and integrity when performing professional services. Hence, the firm is not independent.