Which of the following is an example of an individual financial conflict of interest (COI) in accounting?

• A. A business preparing consolidated financial statements
• B. A company using the accrual basis of accounting
• C. An auditor following Generally Accepted Accounting Principles (GAAP)
• D. An accountant auditing a company in which they own shares

Answer: (D)

Verified step by step guidance

1. Understand the concept of a financial conflict of interest (COI) in accounting. A COI occurs when an individual's personal financial interests could compromise their professional judgment or objectivity.
2. Review the options provided in the problem. Each option represents a scenario in accounting, and the goal is to identify which one involves a COI.
3. Analyze the first option: 'A business preparing consolidated financial statements.' This is a standard accounting practice and does not inherently involve a COI.
4. Analyze the second option: 'A company using the accrual basis of accounting.' This is a widely accepted accounting method and does not involve a COI.
5. Analyze the fourth 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 compromise the accountant's objectivity. This is an example of a financial conflict of interest.