a) Actual independence refers to the attainment of real freedom from a previous commitment to an interest, bias, or personal interest to unwarranted pressure or influence. It is a mental attitude that is dependent on the auditor's objectivity, integrity, and strength of character.

Perceived independence refers to the belief that the users of financial reports have, stating that actual independence is unattainable. In instances where there is actual independence, it may not be easy to attain perceived independence because of the indecision on the situational facts or lack of understanding by users of financial reports.

b) The act is a breach of the Revenue Ruling 69-184, which prohibits individuals from being both partners and employees in the same partnership.

To discharge such a professional responsibility, the auditor should have created a disregarded entity beneath the partnership, whereby it would be treated as a branch of its owner. This structure works to avoid the prohibition of a partner in a partnership being treated as an employee. Alternatively, a tired partnership would have been used. In this case, an upper-tier partnership's partner can be an employee for a low-tier partnership if the upper-tier partnership's partner doesn't have any partnership interest in the low-tier partnership.