Choice "A" is correct. An auditor's faith in the integrity of management is of the utmost importance in performing a financial statement audit. When an auditor is concerned that the integrity of management is suspect, the situation is serious enough to prevent the auditor from performing the audit.
Choice "b" is incorrect. A lack of a written code of conduct is not unusual in a small company and certainly would not prevent an audit from being performed.
Choice "c" is incorrect. Procedures requiring segregation of duties are almost always subject to management override, even in the best internal control system.
Choice "d" is incorrect. An auditor would simply modify the appropriate audit procedures when management fails to modify prescribed controls for changes in conditions.