When is independence NOT impaired for a bank client relating to a loan?

Independence is not impaired for an audit firm when a loan is made in the bank's ordinary course of business. In this context, "ordinary course of business" refers to transactions that are standard and customary for the institution's operations. Loans issued as part of normal banking activities—typically following established lending policies and procedures—do not create a situation that would impair the independence of the auditor, as the relationship is characterized by routine business interactions rather than personal financial ties.

In contrast, other circumstances can raise concerns about auditor independence. For example, loans exceeding a certain threshold, such as $100,000, or those that are made to related parties may pose risks of favoritism or conflict of interest. Unsecured loans can also suggest higher risk for the lender and may create a scenario where auditor independence could be questioned, especially if they are not standard practice for the bank. Thus, the distinction lies in how loans fit within the typical scope of the bank's business operations without crossing the boundaries that might impair an auditor's objectivity or impartiality.