Question 1 (issued January 16, 2001, revised 2004)
Q: What is the Commission's guidance with respect to business relationships?
A: The basic standard of the Commission's guidance is codified in the rules and continues to apply. For example, joint ventures, limited partnerships, investments in supplier or customer companies, certain leasing interest and sales by the accountant of items other than professional services are examples of business relationships that may impair an accountant's independence.
In a 1989 letter to Arthur Andersen, the Commission also stated:
“The Commission has recognized that certain situations, including those in which accountants and their audit clients have joined together in a profit-sharing venture, create a unity of interest between the accountant and client. In such cases, both the revenue accruing to each party ...and the existence of the relationship itself create a situation in which to some degree the auditor's interest is wedded to that of its client. That interdependence impairs the auditor's independence, irrespective of whether the audit was in fact performed in an objective, critical fashion. Where such a unity of interests exists, there is an appearance that the auditor has lost the objectivity and skepticism necessary to take a critical second look at management's representations in the financial statements. The consequence is a loss of confidence in the integrity of the financial statements.”
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