Independence in Fact vs. independence in Appearance

When it comes to auditing, there are two types of independence: independence in fact and independence in appearance.

Independence in fact refers to the auditor's state of mind: can the auditor in fact be unbiased when reviewing the assertions of the client's management?

Independence in appearance refers to the way in which the situation will look to an outsider. If you want to audit the financial statements of a company for which your daughter is the CEO, it is theoretically possible that you could approach the audit with an unbiased perspective (independence in fact). But no one would believe that you are independent for such an audit, since the CEO of the client is your daughter.—
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