What is a Financial Interest?

A financial interest is an ownership stake in an equity security or debt security issued by an entity, including the rights and obligations to acquire such an interest. An auditor is deeply interested in the types and amounts of financial interests he or she holds in an attest client, since these investments can impact the auditor’s level of independence in relation to the client. Impaired independence can result in the auditor having to terminate an attestation engagement, or at least shift the work to someone else within the audit firm who does not have such a conflict of interest.

Example of a Financial Interest

Mr. Jones owns 1,000 shares of Optimistic Corporation, for which he paid $15 per share. Because of the share purchase, he has a financial interest in the company. If the company generates positive cash flow, it may issue dividends, some of which Mr. Jones will receive. Also, if the share price increases to a level above $15, there is a possibility that he might sell the shares at some point in the future. Given the presence of these income possibilities, it can be said that Mr. Jones has an interest in the financial success of Optimistic Corporation.