A is corrent because situations II and III are prohibited by the Code of Professional Conduct, while situation I is allowed. Situation I is acceptable since Interpretation 101-5 allows the CPA to maintain a checking account that is fully insured by a government deposit insurance agency in an audit client. The Code of Professional Conduct states that independence is impaired both by a direct financial interest in an audit client, regardless of whether it is placed in a blind trust and by an indirect financial interest such as the earning of a material amount of rental income from an audit client.
B is incorrect because one or more of these replies is incorrect.
C is incorrect because one of these two replies is incorrect.
D is incorrect because one of these two replies is incorrect.
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