An auditor is performing a Yellow Book audit (GAO Government Auditing Standards) for a state agency. The agency requests the auditor to prepare its financial statements in their entirety from the trial balance. Which of the following best describes the auditor's responsibility regarding independence?

Independence is not impaired if the auditor documents the threat and applies safeguards such as a secondary review.

Independence is impaired because preparing financial statements in their entirety creates a significant self-review threat that cannot be reduced to an acceptable level.

Independence is maintained if management designates an individual with suitable skill, knowledge, or experience (SKE) to oversee the service.

Independence is only impaired if the auditor also makes management decisions.