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Multiple Choice
Which of the following is an example of an individual financial conflict of interest (COI)?
A
An accountant auditing a company in which they own shares
B
A business hiring an external auditor
C
A government agency setting accounting standards
D
A company reporting its financial statements to shareholders
Verified step by step guidance
1
Step 1: Understand the concept of a financial conflict of interest (COI). A COI occurs when an individual's personal financial interests could compromise their professional judgment or objectivity.
Step 2: Analyze the first option: 'An accountant auditing a company in which they own shares.' Owning shares in a company being audited creates a direct financial interest, which could bias the accountant's judgment, making this a clear example of a COI.
Step 3: Evaluate the second option: 'A business hiring an external auditor.' This does not represent a COI because the external auditor is independent and does not have a personal financial interest in the business.
Step 4: Assess the third option: 'A government agency setting accounting standards.' Government agencies are typically neutral entities and do not have personal financial interests in the companies they regulate, so this is not a COI.
Step 5: Consider the fourth option: 'A company reporting its financial statements to shareholders.' This is a standard practice and does not involve an individual's personal financial interest, so it is not a COI.