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When using a torque wrench with an extension, does this alter the torque that the wrench is reading?
If this does change the torque at the wrench, what is the compensation?
No, under static conditions the extension won't have a noticeable affect on the torque applied to the fastener.
Only time you loose torque with one is when there is a dynamic load, like a impact wrench where the slack in the joints soak up the movement and dampen the hammer action. That said if you care about torque settings, you're not using an impact driver