Question

Jackson & Company, CPAs, plan to audit the financial statements of Perigee Technologies, an issuer as defined under the Sarbanes-Oxley Act of 2002. Which of the following situations would impair Jackson's independence?

A. Provision of personal tax services to Johnson, the accounts payable manager of Perigee.
B. Preparation of Perigee's routine annual tax return, where Jackson's fee will be calculated as a percentage of the tax refund obtained.
C. An audit of Perigee's internal control is performed contemporaneously with the annual financial statement audit.
D. Discovering that Lowe, the chief financial officer of Perigee, started his accounting career ten years earlier as a staff accountant for Jackson & Company, and continues to maintain ties with current partners at the firm.

Answer 1

Statement B would impair the independence of Jackson & Company, as any service which involves the contingent fee arrangements with the client will impair his independence.

Step-by-step explanation:

Statement A will not hinder the independence as:

Personal tax services provided to employees of the client do not hinder the independence, but if the same services are provided to corporate officers this is hindrance to independence.

Statement C will not hinder independence as:

In fact, these services are required when performing audit, internal control audit is essential as per PCAOB

Statement D will jot hinder independence as:

This is applicable only if it relates to previous year, since he do not provide service now, it is not going to effect the independence.