## Independence

### Meaning

Independence implies that the judgement of a person is not subordinate to the wishes or direction of another person who:

Has engaged the auditor, or
Could benefit from the auditor's subordination (e.g., self-interest)

In simple terms: the auditor must form opinions free from external pressure or personal interest.

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### Two Interlinked Perspectives of Independence

#### 1. Independence of Mind

A state of mind that allows an individual to act with:
Integrity
Objectivity
Professional Skepticism
Without being affected by influences that compromise professional judgement.
This is the internal dimension — what the auditor actually thinks and feels.

#### 2. Independence by Appearance

Avoiding any facts and circumstances that would cause a reasonably well-informed third party to believe that:
The engagement team's integrity has been compromised
Professional skepticism has been compromised
Objectivity has been compromised
This is the external dimension — how the auditor appears to others.

### Key Distinction

	Independence of Mind	Independence by Appearance
What it is	Actual state of auditor's thinking	How the auditor looks to an outsider
Test	Internal — is the auditor actually objective?	External — would a reasonable person doubt the auditor's independence?
Why it matters	Ensures quality of audit work	Maintains public confidence in audit

> Both perspectives must exist simultaneously — an auditor must be independent AND appear to be independent.

Worked example

### Example 1

Independence of Mind — Breach: An auditor personally dislikes the CFO due to a past dispute. Even if no financial relationship exists, the auditor's judgement may be coloured by this personal bias — independence of mind is compromised.

### Example 2

Independence by Appearance — Breach: An auditor has no financial interest in the client but is the brother-in-law of the CEO. Even if the auditor acts with complete objectivity, a reasonable observer would question the independence — appearance is compromised.

### Example 3

Both Required: An audit firm partner's spouse holds shares in the audit client. Even if the partner genuinely remains objective (mind), a third party would reasonably doubt independence (appearance). Both are compromised — the auditor must resign from the engagement.

⚠️ Common exam mistakes

Treating Independence of Mind and Independence by Appearance as the same concept — they are distinct dimensions that must both be present.
Thinking that if intent is good, appearance does not matter — both are equally important for professional standards.
Forgetting the 'reasonably well-informed party' test for Independence by Appearance — the standard is not whether the auditor thinks they appear independent, but whether an informed outsider would.
Not linking Independence back to the three attributes compromised: integrity, objectivity, and professional skepticism.

Reference: Section 290 — Independence in Audit and Review Engagements — ICAI Code of Ethics (Volume I) — Section 290/291 (Independence)

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Independence — Meaning and Two Perspectives

Worked example

⚠️ Common exam mistakes