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Jack Hardy, CPA, has a brother,Ted, in the clothing business. Ted ran the business as a sole proprietor for 10 years. during this 10-year period, Jack helped ted with various accounting matters. For examples, Jack designed the accounting system for the company, prepared Ted's personal income tax returns (which included financial data about the clothing business), and recommended various cost control procedures. Ted paid Jack for all these services. A year ago, Ted expended the business and incorporated. ted is president of the corporation and also chairs the corporation's board of directors. The board of directors has overall responsibility for corporate affairs. When the corporation was formed, ted asked Jack to serve on its board of directors. Jack accepted. in addtion, Jack now prepares the corporation's income tax returns and continues to advise his brother on accounting matters. Recently, the corporation's applied for a large bank loan. The bank wants audited financial statements for the corporation before it will decide on the loan request. ted asked Jack to perform the audit. Jack replied that he cannot do the audit because the code of ethics for CPAs requires that he be independent when proving audit services. Why is it important that a CPA be independent when providing audit services? Which of Jack's activities or relationships impair his independence?
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