Definition
Independence has two parts in the AICPA Code. Independence of mind is a state of mind that lets a member give an opinion without being affected by influences that compromise professional judgment. Independence in appearance is avoiding circumstances where a reasonable and informed third party would conclude that integrity, objectivity or professional skepticism has been compromised.
Why it matters in an audit or review
Members must be independent in fact and appearance when performing an audit or review. A compilation does not require independence, and the report may disclose a lack of it. Independence can be impaired by financial interests, family relationships, loans, services that cross into management responsibilities and unpaid fees. Firms document independence at acceptance and annually, and each team member confirms.
Example
Before accepting a review engagement, the firm sends its independence confirmation to all staff. A senior discloses that her spouse owns shares in the client itself worth about $2,000 (illustrative). The firm checks the Code's financial-interest rules, which treat a direct financial interest in an attest client held by an engagement team member or immediate family as impairing independence regardless of amount, and removes her from the engagement.
Common mistakes
Treating independence as a form signed once per year. Changes during the engagement, such as a new nonattest service, need a fresh assessment.
Sources
- AICPA, Code of Professional Conduct, ET 1.200.001, Independence Rule
- AICPA, Code of Professional Conduct, ET 1.210, Conceptual Framework for AICPA Independence Standards
- AICPA, Code of Professional Conduct, ET 1.240, Financial Interests
- AICPA, AR-C Section 80, Compilation Engagements (independence not required)
Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error