Auditor Independence
Auditor independence requires that the auditor be free from financial interests, relationships, or influences that could compromise objectivity, encompassing both independence in fact and in appearance.
Explanation
Independence rules come from multiple sources: the AICPA Code of Professional Conduct, SEC rules, and PCAOB standards. Independence in fact means the auditor actually has an unbiased mindset. Independence in appearance means a reasonable third party would conclude the auditor is objective. Common threats include self-interest, self-review, advocacy, familiarity, and undue influence. Direct financial interests in an attest client are always prohibited.
Key Points
- •Independence in fact (actual objectivity) and in appearance (perceived objectivity)
- •Direct financial interests in attest clients are prohibited
- •Five threat categories: self-interest, self-review, advocacy, familiarity, undue influence
Exam Tip
A direct financial interest in an attest client, regardless of size, always impairs independence — but an immaterial indirect interest may be acceptable.
Frequently Asked Questions
Related Topics
Professional Skepticism
Professional skepticism is an attitude that includes a questioning mind, alertness to conditions indicating possible misstatement due to fraud or error, and a critical assessment of audit evidence.
Engagement Letter
An engagement letter is a written agreement between the auditor and the client that documents the terms of the audit engagement, including objectives, scope, responsibilities, and limitations.
Test your knowledge
Practice scenario-based questions on this topic with detailed explanations.