R.3763.ENR 2002). Washington's valuation of companies for XYZ could potentially be argued as not compromising Big 4's integrity in the audit according to the standards set forth by Sarbanes-Oxley, but the performance of background checks on prospective XYZ employees by Johnson, another partner at Big 4, is a clear performance of human resources duties, and this entanglement is explicitly forbidden by Section 201 (H.R.3763.ENR 2002). Then there are the obvious issues of dishonesty that are tantamount to fraud in some cases, and perhaps even qualify as fraud. Certainly, the i=outright attempt to persuade Smith to ignore certain material facts in his audit is in violation of Section 303, and if Smith carried through with this request he (and arguably anyone who asked him to falsify information, though this is not entirely clear in the Sarbanes-Oxley Act as written) would also be in violation of Section 802, which carries a potential prison sentence of up...

Not all of the connections between these two companies are necessarily in violation of the Sarbanes-Oxley Act or even of ethical principles, but there are enough egregious violations to make any relationship suspect. There is no way that Big 4 can perform an audit for XYZ and comply with Sarbanes-Oxley.
References

H.R.3763.ENR. (2002). Bill text. Accessed 4 February 2011. http://thomas.loc.gov/cgi-bin/query/z-c107:H.R.3763.ENR:%20

Kuschnik, B. (2008). The Sarbanes-Oxley Act: "Big Brother is watching" you or Adequate Measures of Corporate Governance Regulation? Rutgers Business Law Journal 5, 64 -- 95. Accessed 4 February 2011. http://businesslaw.newark.rutgers.edu/RBLJ_vol5_no1_kuschnik.pdf