Question

What is auditor independence, and what is its significance to the audit profession? What is the difference between independence in appearance and independence in fact?

Answer 1

Auditor independence refers to the independence of the internal or the external auditor from parties who may have a financial interest in the audit of the business. This requires the auditor to carry out the work freely and in an objective manner.

The significance of auditor independence to the audit profession is that since the auditor is independent from the client company, the audit opinion will not be influenced by any relationship between them. The auditors are expected to give an unbiased and honest professional opinion on the financial statements to shareholders.

Independence in appearance indicates whether the auditor appears to be independent whereas independence in fact indicates that the auditor possesses independent mindset while planning and executing the audit and the resulting audit report would be unbiased.