What is the consequence if a CPA audits an entity and also prepares payroll records for that entity?

When a CPA performs both auditing and payroll preparation for the same entity, it creates a conflict that can impair the auditor's independence. Independence is a cornerstone of the auditing profession, as it ensures that the auditor can provide an objective and unbiased assessment of the financial statements.

By preparing payroll records, the CPA may develop a vested interest in the financial results of the entity, which could lead to biased judgment during the audit. This dual role poses a risk that the auditor could overlook errors or misstatements during the audit due to their involvement in the entity's operations. Thus, to maintain the integrity and objectivity of the audit process, it is crucial that the CPA does not engage in such overlapping functions.

Maintaining independence is vital to upholding public trust in the financial reporting process, and any action that compromises this principle, such as providing payroll services while conducting an audit, is deemed unacceptable and impairs the CPA's ability to fulfill their ethical obligations.