Question

The SEC has historically raised questions regarding the independence of firms that derive a significant portion of their total revenues from one audit client or group of clients because the SEC staff believes this situation causes CPA firms to

Answer 1

Answer:

have mutuality of interest with the client or group of clients

Explanation:

When firms obtain a large portion of their total revenue from one audit client, their independence is likely to be impaired as the CPA firm will hold a direct or indirect financial interest in that one audit client or group of clients. This is known as a self-interest threat to independence.

Answer 2

Answer:

B - Depend too heavily on the fees generated by the client or clients.

Explanation:

The keyword here is one client or group of clients. Whenever any company becomes too heavily dependent on another company, for a greater portion of its total revenues, then it does not only raise an ethical flag, but also increases the risk of the firm. If the primary source of its total revenue is pulled out, the company has a high probability of becoming bankrupt.