In a situation where a CPA partner buys into a tax shelter and later finds out that client executives are also invested, what is the impact on independence?

In this scenario, the correct choice indicates that independence is not impaired with respect to these clients even though a CPA partner has invested in a tax shelter alongside client executives. The reasoning lies in the understanding of the relationship between a CPA's financial interests and their independence from clients.

The key concept is that independence is considered to be compromised if a CPA has a direct financial relationship with a client that could influence or appear to influence their judgment in conducting an audit or providing advice. However, simply having an investment in a tax shelter does not automatically render a CPA lacking in independence. This is especially true if the financial interest does not create a significant conflict of interest, which is often the case if the investment is passive or does not create a direct or material relationship with the client.

Further, independence might require that the CPA disclose any potential conflicts, and if the ownership in the tax shelter does not materially affect the CPA's objectivity or the client's financial statements, independence can be maintained. The professional standards emphasize evaluating the substance of the investment and its implications on professional judgment.

Understanding these principles shows the importance of assessing the facts of each situation. A mere association in an investment like a tax shelter does not inherently impair independence unless there are additional factors indicating that the CPA’s