Evaluation Of A Independent Audit Committee

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.

Exceptions can be approved by the Board and are made in cases where the revenue paid for such services contributes less than 5% of revenues paid to the auditing firm. Also, a public accounting firm may provide these non-audit services along with audit services if it is pre-approved by the audit committee of the public company. The audit committee will disclose to investors in periodic reports its decision to approve the performance of non-audit services and audit services by the same accounting firm. This requirement to disclose to investors is likely to inhibit auditing committees from approving the performance of auditing and non-auditing services by the same accounting firm. Other sections outline audit partner rotations, accounting firm reporting procedures, and executive officer independence. Specifically, subsection 206 states that the CEO, Controller, CFO, Chief Accounting Officer or similarly positioned employees cannot have been employed by the company's audit firm for one year prior to the audit.

203. Audit partner rotation, makes it unlawful for an auditor to perform audit services for a client in excess of five years, if the lead audit partner or the reviewing partner have audited the same client in each of the last five years.

● enhance the independence of the audit partner in charge by a system of rotation and is not compatible with consulting and auditing services ;

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.

The company should hire it’s own internal auditor’s to ensure that the staff understand the company’s accounting procedures. This also helps the external auditor as it give the external auditor another viewpoint when assessing fraud risks. The internal auditors are apart of those charged with governance and that helps take the pressure off of the external auditor if a fraud should be discovered.

Auditors having the appropriate competence and capabilities to perform the audit, and follow ethical requirements, and maintain professional skepticism throughout the audit.

The point in which an auditor violates the independence rules and guidelines would primarily be conflicts of interests and can be broken down to smaller issues like financial involvement and family members. Any conflict of interest should question the auditor’s independence and the conflict should be reviewed to insure continued independence. In reviewing the code of conducts for the Big 4, three of the companies explicitly cover conflicts of interest and the third has a portion of their website covering the issue. If a member of the audit team has a conflict of interest it should be brought up, and if the firm is too small hiring a contractor to serve as the audit partner might be allow some degree of arms length. The AICPA has a

According to ICAEW, auditor independence mainly refers to the independence of the external auditor from parties that have an interest in the financial statements of the business being audited. It requires having both integrity and an objective manner to the auditing process. In order for the concept to be deemed effective the auditor needs to carry out their work freely. One of the main purposes of auditing is to increase credibility of the entity’s’ financial statements, as they have expressed their own professional opinion on the truth and fair view in accordance with the proper accounting standards used. This is only possible if the audit is made with reasonable assurance that it has come from an independent source and has not been influenced by other parties, such as managers, directors or by conflict of interest.

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

The internal auditor have a several roles in the company which is the first one the audit committee need to discharge and restrict the governance responsibilities and the

The aim of this essay is to study the function of external auditors in order to analyze why it is important to be independent. The primary mission of external auditors is to review and evaluate all the financial records of a company or corporation. They provide an objective opinion on the organization’s financial statement and effectiveness of the accounting polices in order to help management to make decisions. If the independence of the external auditors is impaired, the public will doubt the quality of professional auditing services, and the consequence would be very serious, just like the bankruptcy of Enron led to the disorganization of Arthur Andersen, once a giant accounting company in the world. In order to maintain and increase

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.

are therefore placed in a position to render stewardship accounts are now given the power to hire and fire‘ external auditors who would audit the accounts of their own activities. This runs counter to the ideal principles of public accountability. Therefore it will put the auditor‘s investigative and reporting independence in danger and this may defeat the purpose of public audit and erode the independence and hence, the objectivity of report of the auditors. In this case, independence of the auditor will give impact on the accountability of the public enterprises in Nigeria.