Auditor Independence
The requirement that an auditor be free of relationships that impair, or appear to impair, objectivity.
AUD loves a “which threat / does this impair independence” stem: the answer hinges on the AICPA Conceptual Framework’s seven threats (self-review, advocacy, adverse-interest, familiarity, undue-influence, self-interest, management-participation) and whether a safeguard reduces the threat to an acceptable level. The classic trap is the covered member rule: a direct financial interest always impairs regardless of materiality, while an indirect interest impairs only if material (a diversified mutual fund that holds the client is usually indirect, immaterial unless you own >5% of the fund). Watch for bookkeeping or any management responsibility for an SEC issuer audit client — flatly prohibited under SEC/SOX rules, no safeguard cures it.
Don’t confuse independence with professional skepticism, a questioning mindset applied to evidence. Independence is required for audits and reviews (both attest), but not for compilations (impairment just gets disclosed) or for preparation/consulting engagements. The engagement letter documents terms but never “creates” independence. Memory hook: the reasonable, informed third-party test polices appearance even when your judgment is actually unaffected.
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