Audit independence in fact is most clearly lost when:

Multiple Choice

a public accounting firm audits competitor companies in the same industry $($e$.$g$.,$ Coca$-$Cola and Pepsi$).$

an audit team fails to discover the client$$s misleading omission of disclosure about permanent impairment of asset values.

a public accounting firm issues a standard unmodified report, but the reviewing partner fails to notice that the assistant$$s observation of inventory was woefully incomplete.

an auditor agrees to the argument made by the client$$s financial vice president that deferring losses on debt refinancing is in accordance with generally accepted accounting principles.