Answer 1:
The professional standards does not allows an auditing firm to provide some services to their clients and some are permited. According to these professional standards, these services are only allowable to the extent it does not undermines the independence of the external auditor, however by law most of these are prohibited. This is because due to self interest threat (the client generates a large share of the total revenue of the firm) and self review threat which is that the external auditor is reviewing his own firm's work (for example the Ex.Auditor is reviewing his tax computations). So in these cases the firm is prohibited from offering services to their clients by the professional body as well.
Answer 2:
The Sarbanes-Oxley Act says that audit committee which is composed of solely Non-Executive Directors, are only directly responsible for the engagement of External auditor. Furthermore the SEC rules also prohibit the external auditors to undermine their independence and also delegates responsibility to the members of the audit committee. The audit committee ensure that whether or not this engagement has any threat to auditor's independence.
Due to all this the company's Executive directors are restricted on appointing the external auditors.
Answer 3:
The advantage was that the audit firm has wider knowledge of the firm's operation and can better calculate the tax liabilities of the organization. Futhermore the company is also required to have separate teams for this services to avoid the self review threat related to the assignment. It also provides small firms a great opportunity to exploit greater opportunities.
And the disadvantage was that the audit firms got over relying on these organizations and external auditors offer relaxation in their work. Some firms don't use separate teams for such assignment and compromise the rules and regulations.
Answer 4:
The impact is that the smaller firms are given lower chances of exploitation of major opportunities. CPA says that 98% of market share is occupied by the big 4. The public organization can have greater shareholder confidence if it is audited by the big 4, which means that the confidence of shareholders will fall if the audit is conducted by the smaller firms.
