What impact does a threat of litigation from a client have on a CPA's independence?

A CPA's independence is fundamental to maintaining the integrity and objectivity of financial reporting and auditing processes. When a threat of litigation arises from a client, it creates a conflict that can compromise the CPA’s ability to remain unbiased. The threat, regardless of its merits, engenders a fear of potential repercussions that may lead the CPA to alter their professional judgment or to be overly accommodating to the client's interests to avoid litigation, which undermines the independence required in their role.

Therefore, it is recognized that independence is impaired at the moment a litigation threat is perceived, as it casts doubt on the CPA's ability to act with objectivity. This principle emphasizes the necessity for CPAs to have an environment free of external pressures, including the fear of litigation, to ensure that their professional opinions and decisions are entirely impartial.