Question

Which of the following is true if an auditor performs nonaudit services for a government entity?

a. Independence is always impaired
b. Independence is impaired only when the nonaudit services involve preparing financial statements
c. Independence is impaired if the nonaudit services involve reviewing the government's financial statements
d. Independence is not impaired

Answer 1

Independence is impaired if the nonaudit services involve preparing financial statements.

Step-by-step explanation:

Independence is impaired if the nonaudit services involve preparing financial statements. When an auditor performs nonaudit services for a government entity, independence is compromised if the auditor is involved in preparing financial statements. This is because the auditor's objectivity and impartiality may be influenced by their involvement in the preparation of the entity's financial statements. Such involvement may create a conflict of interest and undermine the independence required for conducting an audit.