Final answer:
Independence in auditing standards ensures that auditors objectively assess financial statements without conflicts of interest, maintaining trust in the audit's credibility and supporting effective corporate governance.
Step-by-step explanation:
The essential meaning of the generally accepted auditing standard that requires the auditor to be independent is to ensure that the auditor is objective and not influenced by any parties that may have an interest in the financial statements. This includes remaining free of conflicts of interest and not being swayed by the potential consequences of reporting what is found during the audit. Independence is key to the credibility of the auditor's findings, as it assures that the audit opinion is based solely on the evidence and the auditor's professional judgment.
In the case of corporate governance, the independence of the auditors serves as a critical checkpoint that bolsters confidence in the financial reporting by the company. Investors, regulatory bodies, and other stakeholders rely on audited financial statements to make informed decisions. If an auditor's independence is compromised, it could lead to a failure in corporate governance, as was seen in the example of Lehman Brothers.