It is too vital for the auditor to be independent both in mind and in appearance. The auditor must be independent of the management and affairs of the entity because he should act in the best interest of the shareholders. In company's management and owners are often different and owners are not sometimes in the management of the company. The owners are called shareholders who appoint the auditor to know the actual financial position of the entity and can confirm that the company is running by the management of the company in the right direction.
International standards on auditing require that the auditor shall be independent and should not involve in the decision-making process of the entity. There are two types of independence that an auditor should have while performing the audit
Actual independence is related to the state of mind that depends on the auditor's integrity, objectivity, and strength of character and one can conclude that the auditor is independent in actuality and such independence can be seen from his/her acts.
Perceived independence is 'the belief of the users of the financial statements that actual independence has been achieved'. This means that the shareholders of the entity should be in the satisfaction that the auditor appointed will be acting in the best interest of the entity and that he should not be affected by the influence of the management of the entity.