Independence Discuss what audit independence is and why it is important to the audit firm and the profession. What are some major threats to audit firm independence and what are some of the steps that audit firms and the profession have taken in addressing those threats?

There are two types of audit independence, i.e., independence in fact and independence in appearance. Independence in fact deals with the mental state that the auditor brings to the engagement. Auditors should be objective and unbiased in their judgments and exercise sufficient professional skepticism. Independence in appearance deals with their relationships with clients. Auditors should avoid those relationships with clients that would give the appearance of a lack of independence. Both independence in appearance and in fact are important to the audit firm and the profession since the only value that an audit adds to the client is to enhance the credibility of their financial statements. Without independence the audit can add no value for the client. Independence is the cornerstone of the audit profession because it is the basis upon which the usefulness of the audit function is based.
Some major threats to the audit firm's independence include:
Compensation schemes of partners.
Understanding who the client is.
Over familiarity with the client.
Time pressures in performing the audit.
Ability to rationalize actions.
Providing Non-audit Services.
Some ways in which the audit profession and audit firms have dealt with these threats include:
Establishing and monitoring codes of conduct.
Balancing compensation schemes.
Implementing high-level reviews of decisions to accept or retain clients.
Separating consulting activities from audit activities.
Performing within-firm reviews of audit work and audit documentation.
Performing reviews and inspections within the profession.