I keep trying to find this thing and never seeing it. I think the spot that everyone is talking about is where you find the first compass, when you go through the dungeon the first time. When you take it back to Varn(?) is when he gives you the three lost and found quests, the third being to find another compass. I may be completely wrong in how I'm remembering it, but I'm pretty sure that up the waterfall is where you get the first one.
SO, does anyone really know where the next compass is found?