Independence

I think understanding the distinction is important to understanding the concept of independence.

Suppose I am a partner in AB & Co responsible for the audit of GH Co – I am a qualified accounting professional up-to-date with my CPD and obviously competent. As I value the profession and what it stands for and my own standing in the profession I take ethics very seriously. In my own mind I am absolutely objective in my professional judgments and I consider my integrity to be such that nothing could compromise my independence. Is that enough?

Now suppose my brother has been head-hunted as finance director to GH Co – we are not close – I haven’t seen him for three years and the last time we spoke was a year or so ago about a personal tax matter – I don’t remember – as I say we’re not close.

Image a headline if GH Co fails “AB & Co sued/fined for GH Co audit failure – auditor was director’s sister!”

The point is, that no matter how highly I rate my ethical stance, I cannot be independent in APPEARANCE. In this case the perceived familiarity threat would be so great that I could not be the audit engagement partner – there is no safeguard that would be sufficient to reduce that threat to an acceptable level – I would have to be removed from the audit team.

Although I think few candidates would consider the distinction it could be relevant to developing an answer from simply “the facts” to how something might appear to a third party.

You’re very welcome!