Pub. 7 2010-2013 Issue 3

www.nebankers.org 12 Extraordinary Service for Extraordinary Members. There are two important aspects to independence that must be distinguished from one another: independence in fact (real independence) and independence in appearance (perceived independence). B OTH ASPECTS ARE ESSENTIAL TO achieve the goals of indepen- dence. Real independence refers to the actual inde- pendence of the auditor, also known as independence of mind. More spe- cifically, real independence concerns the state of mind of an auditor and how the auditor reacts and deals with a specific situation. An auditor, who is in fact independent, has the ability to make independent decisions even if there is a perceived lack of inde- pendence present or if the auditor is placed in a compromising position by company directors. Many difficulties lie in determining whether an auditor is truly independent, since it is impos- sible to observe andmeasure a person’s mental attitude and personal integrity. Similarly, an auditor’s objectivity must be beyond question, but how can this be guaranteed and measured? This is why perceived independence is of great importance. It is essential that the auditor not only acts independently, but also ap- pears independent as well. If an audi- tor is in fact independent, but one or more factors suggest otherwise, this could potentially lead to the conclusion that the audit report does not represent a true and fair view. Independence in appearance also reduces the opportu- nity for an auditor to act other than independently, which subsequently adds credibility to the audit report. Opinions vary widely regarding the difference between auditing and consulting. The majority agree that compliance review and risk as- sessment objectives are strongly associated with auditing, while im- plementing policies and proce- dures are strongly associated with consulting. However, a significant majority be- lieve the identification of critical issues and recommendations to solve prob- lems are a mix of auditing and consult- ing combined. In an effort to eliminate confusion between these two very dif- ferent functions, a set of activities are identified below that are considered “best practices” for the two fields: Consulting Activities: 1. Focus on daily activities and future Is Your Auditor Participating in Writing of Policy and Procedures? If so, they may be determined to not be independent. Darlia Fogarty , Director of Compliance, Compliance Alliance Inc.