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. An audit of Perigee's internal control is performed contemporaneously with the annual financial statement audit.

c. 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.

d. Preparation of Perigee's routine annual tax return, where Jackson's fee will be calculated as a percentage of the tax refund obtained.

Explanation

Choice "d" is correct. The provision of services involving contingent fee arrangements impairs the auditor's independence.

Choice "a" is incorrect. Personal tax services provided to employees do not impair the auditor's independence; however, personal tax services provided to corporate officers or their families would impair independence.

Choice "b" is incorrect. Independence is not impaired by the performance of an audit of Perigee's internal control; in fact, such services are required by PCAOB Auditing Standard No. 5 (covered in a later class).

Choice "c" is incorrect. The prohibition against auditing companies whose corporate officers worked for the auditing firm only applies if those officers worked on the audit during the preceding year.