When Auditors Divest Themselves of Shares Owned in a Client

question 47

True/False

When auditors divest themselves of shares owned in a client company, they are eliminating
their self-review threat to independence.

---

Definitions:

Distortionary Tax

A type of tax that causes consumers and producers to change their behavior in order to avoid paying the tax.

Tax Distortion

Describes how taxes can alter market behavior and lead to efficiency loss compared to an untaxed market.

Optimal Taxation

The theory or practice of determining the most efficient and effective way of levying taxes to generate government revenue with minimal economic distortion or inefficiency.

Excess Burden

The societal expense resulting from market inefficiency, which arises when supply and demand are not in balance.