A Report On Auditor Independence

The factor that plays the greatest role in determining auditor independence is independence in mind. Auditors may or may not appear to be independent, but if the auditor is truly independent in mind, then the auditor can remain objective and unbiased. The profession should consider tightening the Code of Professional Conduct to address the issue of an audit team member knowing a close friend that holds any position at the audit client. If this scenario arises, the firm can still audit the client, but the audit member with the close relationship won’t be able to be on the audit team.

Auditor Independence contains 9 parts which stablish standards for external auditor independence, so it will have limit conflicts of interest, also contains that an approval requirements for new auditor, audit partner rotation, and auditor reporting requirements. Also restrict auditing organization from providing non audit services for the same clients they audit.

Legitimacy in accounting practices is ensured by the check and balance of having independent auditors from registered public accountant firms reviewing financial practices. The report features eleven sections and these sections pertain to accounting overview, independence of auditors to reduce interest conflicts, corporate responsibility, financial disclosures, tax returns, criminal fraud and various elements of white collar criminal activity (107th Congress

According to the Public Company Accounting Oversight Board (PCAOB), The primary objective and responsibilities of auditor is to express an opinion on the fairness with which all financial statement including all of its (material aspects, financial position, the result of the company operation and its overall level of cash flows) AU Suction 110. Thus, what this means is that auditor must be fully independent and must be fully able and willing to apply professional judgment as it relates to the audit engagement under consideration.

An auditor’s role in an audit is very important. An auditor must be able to collect enough evidence to supports their finding, and also be on the lookout for fraud. Company’s may or may not know the law, but it is the job to know the law, and be able to educate and report findings properly. Since the Sarbanes-Oxley Act, there have been provisions that have directly affected auditors. This paper will include the details of the Sarbanes-Oxley Act, how ethics and independence have affected auditors, as well implementation of new standards based on the Sarbanes-Oxley Act.

This means that the main goals of the act in enhancing auditor independence in preventing fraud in future are faced with pressures regarding its efficiency. Case 3 Effective fraud control depends on prevention of the following three weaknesses in the internal control system. First is the static nature of internal controls. This means that internal controls might not be fluid in terms of evolution with the changes experienced in technology, business and the fraud environment. Second is the immunity of the internal control systems. For instance, if a company’s internal control system has weak control policies for its procedures and processes, then the company becomes a target for both internal and external criminal activities. Thirdly, are unclear definitions of the roles and responsibilities of ownership. By this it means that if the internal control system is not well defined to the employees, then there will be an assumption that the role of the internal controls is to only perform audits hence they would not be interested in preventing fraudulent

Part two, entitled auditor independence, helped create a statutory code of ethics for public accounting firms. New, specific regulations were set up to dissuade ethic violations. A list was created of consulting services that audit companies cannot perform for companies that they audit and senior management conflicts were resolved by not allowing audit firms to audit if a senior manager was a former employee of the audit company. Auditors were required to rotate the companies that they audit every five years and auditors must report to an audit committee. Laws and regulations for accounting firms were encouraged. (Jennings, 2012)

Auditors must remain independent in their work at all times. Any activities with the client that may breach the principle of independence must be avoided. Audit firms should try as hard as possible to remain focused on their main duty, which is audit, and avoid taking other responsibilities requested by the client. Auditors have to understand the charity organizations well in order to develop a clear vision and knowledge on the business procedures and areas of risk. As presented in the case, most of the risks that charity organizations face are financial related, especially theft and fraud. Auditors should focus on measures to prevent these cases in the charities. When making recommendations to the charities, auditors should always advice the organizations to implement internal control system, such as bank reconciliation for cash accounts, and proper separation of duties within the

It’s trust-worthy and reliable to have independent and unbiased auditors confirm that an organization’s claims about its financial position and the process behind these claims are true and independent. The most important element for the audit report and opinion should be free bias. In order to achieve this goal, auditors need to be objective. Auditor, as one part of the professional accountancy bodies, is required to obey the ethics codes, which ensure the auditor to be independent.

The fundamental principle that requires the professional accountants to behave with professional integrity in their business relationships with clients, which sometimes they struggle and make great efforts to maintain their objectivity in their professional and business judgments. Objectivity is a mindset of professional accountants and on certain occasions, to preserve the objectivity professional accountants have to maintain an independent approach from those factors that can influence and impair objectivity. Independence requires independence of mind and independence in appearance. Not only by maintaining an independence of mind which is, not to be affected by the influences that can compromise the judgment and the integrity of the professional accountant, but he has to maintain an independence in appearance as well,

Internal auditors cannot effectively provide an analysis on the company’s internal dealings as they are part of the company. External auditors, however, can observe these processes from the outside and then determine where the funds of the company and whether the dealings adhere to the regulations. Using external auditors in a company prevents conflict of interest from happening. Conflict of interest is a situation where an individual or organization has multiple interests and of those multiple interests, one could possible corrupt the motivation for an act on the other when the auditor has any kind of beneficial interest in their client’s performance. In other circumstances, there is also the threat of familiarity where auditors become

Another threat to the independence of the auditors is a phenomenon which took place around 3 or 4 decades ago. During that time the number of firms which required audits stopped expanding, the codes that prohibited advertising accounting firms were abolished, which enabled all these firms to steal market from each other. Furthermore, a lot of audit bodies engaged into consulting, bookkeeping assistance, investigation and tax advices. This trend resulted in

I have provided detail on consideration of independence and objectivity, based on guidance from the International Institute of Internal Auditors (IIA). I have also charted steps should taken by TechNet to ensure the internal audit department’s independence and objectivity.

The lack of independence for external auditors will lead to the neglect of auditing risks (William R.K., 2003), which are the main reasons for the failure of certified accountants and professional accounting organizations. The consequence of the external auditors deprived of independence would be very serious. And there are many cases, which aroused by the failure of external auditors and most are related to the lack of independence. One famous example is the bankruptcy of Enron and the role played by its external auditor, Arthur Andersen (Todd, S., 2003). Arthur Andersen was once one of the biggest accounting companies in the world, and was canceled for the involvement in the Enron bankruptcy scandal.

This paper critically analyses the independence of the internal audit function through its relationship with management and the audit committee. Given the growing role of internal auditing in contemporary corporate governance and independence has gained renewed attention.