Audit Case 34

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.

Independent audit in turn makes the financial statements more credible and reliable source of information

Trend analysis, common-size financial statements, and ratios are presented for the Brody Corporation in Figure 5.4. Assume that you are auditing Brody 's financial statements for the year ended 12/31/X8. You have performed tests of controls over the recording of gross sales and believe that the system is operating effectively and that 7 percent represents an accurate estimate of the increase in gross sales for 20X8 over the amount for 20X7. You should also assume that the financial statements for 20X6 and 20X7 are not misstated.

When analyzing the Pinnacle Manufacturing Financial Statements there multiple concerns that should be further investigated that I will explain in this memo. When identifying the year to year change and using financial ratios found on A6, there are a couple of concerns that need to be identified. The fact that the operating expense from fluctuated from an increase $892,861 from 2009 to 2010 and then decreased by $956,231 from 2010 to 2011 should be raised in question. At the same time Operating expenses income from operations decreased from 2009-2010 by $1,260,571 and increased from 2010-2011 by $78,541. The -23.10% from 2009-2010 is concerning in their ability realized from profit on their business operation. On the balance sheet there

Baseball umpires and auditors are expected to independent. Auditors must not be influenced by clients and baseball umpires cannot root for one team. When I analyzed this situation, my decision whether to lend money or not to TS Company was largely based on how I perceived the audit, whether it was independent or not. Independent auditors help protect public interest and in this situation, my interest as a banker was at stake. My confidence in the TS Company financial statement was based on the independence of the audit. Also, wins or loses do not matter to baseball umpires, their only concern in that everyone abides by the rules of the game; their judgement is not clouded by the outcome of the game. In comparison to this situation, when the business relationship between Mary’s Company and TS Company was not material or significant, I concluded that the unqualified opinion given by Frost & Rubin CPA was “clean” because there was no conflict of interest and like baseball umpires, their loyalty it to the rules and not to a

What would the effects be on the capital markets if investors did not perceive financial statement auditors as having independence, objectivity, and integrity? Investors rely on the issuers’ financial statements. They need to get the assurance that the financial statements are free from error and are objective & honest. If the investors do not perceive auditors of financial statement as independent of a company, honest, & non-biased then will be less likely to invest in that company and its market value will go down.

The last aspect, programming independence, covers the need of the auditor to have absolutely no interference from their audit client in how the audit is run. An audit client cannot attempt to control any aspects of the audit such as changing or restricting any procedures an auditor may want to perform. The audit client may not try to control any of the audit work and may not put any type of restrictions on how many auditors may come to the location to perform fieldwork.

15) Current professional auditing standards prohibit external auditors from using internal auditors for direct assistance on external audits.

Independence is extremely important, necessary, and appropriate because without an independent IAD, IAD’s objective of adding values and improving business operations cannot be achieved. Independence is also a key component in Attribute Standard. Accountability section states the chief audit executive’s responsibility to the management and audit committee. It is necessary and appropriate because it leads to significant communication between the CAE and top management and between the CAE and the Board; it also helps ensure that the standards and requirement of the internal auditing function is achieved.

Chapter 2 2.54 Independence a. Independence in fact relates to the auditors’ “state of mind” and reflects an unbiased and impartial perspective with respect to the financial statements and other information they audit. Independence in appearance relates to others’ (particularly financial statement users’) perceptions of the auditors’ independence. The two general types of relationships that compromise auditors’ independence are financial

The issue of independence is another reason why companies choose to have an external audit done. Independence refers to when different employees perform different tasks within a specific department. We will use the accounts receivable section of the accounting department as an example. For independence to occur, a company would want to have separate employees collecting cheques and/or cash, preparing the deposit, and actually depositing the cheques and/or cash. For some companies, usually smaller ones,

One of the standards in Generally Accepted Auditing Standards is that the auditor must maintain independence in mental attitude in all matters relating to the audit. (AICPA, AU §150.09, para. 4) Independence is an essential standard for all auditors to maintain and when take on new roles. The public trusts the auditors with their proficiency and knowledge to bring more confidence to the public in reviewing companies’ financials. The accountants and auditors are consider trustworthy professionals. There are many studies that question accountants and auditors’ responsibility. Independence is one of the main challenges today and the second challenge is the inefficient functioning of account firms.

Independence refers to the liberty of the internal auditor to carry out activities in an unbiased manner.

D.2. An INDEPENDENT AUDIT is an evaluation and unbiased opinion about the accuracy of company financial statements.