An Investigation Of An Audit

1561 Words7 Pages
An audit can be described as an official inspection of an organization 's accounts and is typically conducted by an independent body. Companies often hire external auditors in addition to auditing themselves. External auditors are accountants who work independently of a particular company. They examine company records and operations to ensure financial statements are accurate. External auditors are important to establishing your small business ' credibility and to ensuring compliance with tax laws. There are many reasons for an external audit to take place, such as that information becomes more reliable and useful as a result of the audit. This is known as an information hypothesis. Another justification for an audit…show more content…
The Sarbanes-Oxley Act (the "Act") included a number of significant provisions designed to bolster the auditor 's independence from the company under audit. For example, for listed companies, the Act puts the audit committee—rather than management—in charge of hiring the auditor and overseeing the engagement. It also prohibits auditors from providing certain nonaudit services to clients and imposes mandatory audit partner rotation. In 2002, Congress considered requiring audit firms to rotate off an audit engagement after a set number of years during the debates that led to the Act. Instead, it decided that the idea required more study and directed the General Accounting Office ("GAO") to prepare a report. That report was issued the following year and concluded that "mandatory audit firm rotation may not be the most efficient way to enhance auditor independence and audit quality. First, the main argument in favour of mandatory audit firm rotation is an increase in auditor ‘independence in fact’, ultimately leading to higher audit quality. In other words, long tenure of the auditor might lead to excessive familiarity between auditor and client. By minimising the maximum length of tenure, it is argued that auditors will be forced to pay closer attention to the details and be more sceptical in their audit approach. Most analytical research also confirms a positive effect of rotation on independence, especially in cases of high market concentration

More about An Investigation Of An Audit

Open Document