RS & Co., Chartered Accountants, were appointed as statutory auditors of Zifi Infra Ltd., a listed company engaged in infrastructure…

"Independence” implies that the judgment of a person is not subordinate to the wishes or direction of another person who might have engaged him. The auditor should be independent of the entity subject to the audit. There are two interlinked perspectives of independence of auditors, one, independence of mind and two, independence in appearance. Independence is: (i) Independence of mind – the state of mind that permits the provision of an opinion without being affected by influences that compromise professional judgment, allowing an individual to act with integrity, and exercise objectivity and professional skepticism; and (ii) Independence in appearance – the avoidance of facts and circumstances that are so significant that a reasonable and informed third party, having knowledge of all relevant information, including any safeguards applied, would reasonably conclude a firm's, or a member of the assurance team's, integrity, objectivity or professional skepticism had been compromised. Independence of the auditor has not only to exist in fact, but also appear to so exist to all reasonable persons. The relationship between the auditor and his client should be such that firstly, he is himself satisfied about his independence and secondly, no unbiased person would be forced to the conclusion that, on an objective assessment of the circumstances, there is likely to be an abridgement of the auditors' independence. In the given case, although the auditor may be maintaining objectivity (independence of mind), the following factors raise serious concerns regarding independence in appearance: Close personal relationship with the CFOProvision of consultancy services (self-review threat)Economic dependence on a single client These circumstances may lead a reasonable third party to conclude that the auditor's independence is compromised.