Choice "D" is correct. Independence of a member is impaired if the CPA's spouse is employed by the client in a position which is audit-sensitive. Examples of positions that are audit-sensitive include cashier, internal auditor, accounting supervisor, purchasing agent, or inventory warehouse supervisor.
Choice "b" is incorrect. The following types of loans do not impair independence:

1. Automobile loans,

2. Loans of the surrender value under terms of an insurance policy,

3. Borrowings fully collateralized by cash deposits at the same financial institution, and

4. Credit cards and cash advances on checking accounts with an aggregate unpaid balance of $10,000 or less.

Choice "a" is incorrect. Litigation not related to the engagement for an immaterial amount does not impair independence.Choice "c" is incorrect. Acting as an honorary trustee for a not-for-profit company does not impair independence.