An auditor is conducting an audit of a nonissuer in accordance with GAO Government Auditing Standards (the Yellow Book). The auditor has been asked to perform a non-audit service: preparing the entity's indirect cost proposal for a federal grant. Which of the following statements BEST describes the auditor's independence responsibilities?

Independence is automatically impaired because preparing a cost proposal is a management responsibility.

The auditor may perform the service without applying safeguards if the fees are immaterial.

The auditor must evaluate whether the service creates a threat to independence and, if so, apply safeguards such as having management designate an individual with suitable skill, knowledge, or experience (SKE) to oversee the service.

The auditor is prohibited from performing any non-audit services for an audit client under GAO standards.