American Institute of Certified Public Accountants (AICPA) Practice Exam

What does the SEC prohibit auditors from being involved in?

1. Being a consultant for the client.

2. Being a broker-dealer.

3. Being a partner in a law firm.

4. Providing tax services to clients.

The correct answer is: Being a broker-dealer.

The correct answer reflects the SEC's stance on auditor independence, particularly the prohibition against auditors being brokers or dealers in the securities market. This restriction is in place because it creates an inherent conflict of interest and undermines the impartiality required for objective audit opinions. Auditors are expected to remain independent from the entities they audit to ensure their assessments are unbiased and credible. If an auditor were also acting as a broker-dealer, it could compromise their ability to remain independent and impartial, as their financial interests would be tied to the client's performance in the marketplace. This separation helps maintain trust in the financial disclosures and overall integrity of the audit process. In contrast, while providing consultancy services or tax services to clients can also raise concerns regarding independence, there are often controlled situations where such services may be permitted provided that certain safeguards are in place to mitigate conflicts of interest. Similarly, partnerships in law firms, while they could pose issues depending on the context, are not outright prohibited by the SEC. Thus, the focus on the auditor’s role as broker-dealer uniquely highlights a significant and specific risk to independence that the SEC aims to eliminate.