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Ways an external auditor may appear not independent

Perhaps the issue of independence in internal audit departments goes back to, as you mentioned before, the morality of the internal audit staff. The internal audit department I worked for took the issue of independence seriously. It was important to not only keep an independent mindset, but also to be independent in appearance. The internal audit department was kept in a separate building if possible, and when it moved it was one of the few departments in the building that had highly restricted access. The reporting structure also plays an important part in the appearance of independence.

How important is it that an external auditor appears independent?

What are some ways that an external auditor may appear to not be independent?

Response must be substantive. Thanks for the help!

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How important is it that an external auditor appears independent?

It is critical that the external auditor appear independent (and be independent in fact as well). The role of the external auditor is to offer an unbiased and objective opinion on the fairness of the financial statements. It is the independence of the auditor that makes the second opinion worthwhile. Management has an incentive to exaggerate to look good. By having an independent set of eyes double-checking this tendency, the financial information is considered more credible and can therefore be relied upon for important decisions. If the auditor is not ...

Solution Summary

Your tutorial gives example of activities that would impair the appearance of independence. The discussion also explains why the appearance (as well as the fact) of independence is critical to the external audit.