The Importance Of Auditor Independence On An Audit

If the auditors of today followed the same rules they did in Great Britain during the 19th century, then America would be in trouble. With such a competitive and strong capitalistic market, it would be hard to not be tempted to alter the financial statements of publically traded companies if there were no independence standards. Today’s business world obviously holds independence of auditors to be important or else Michael Goodbread would have never been investigated by the SEC.

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

An auditor needs independence to perform an unbiased audit. According to Iain Gray and Stuart Mason, an audit is an informed opinion, based on truthful and fair information provided by the interested party whom should be independent of the preparer/auditor (21). Based on this definition, an auditor must self-distance from the subject of the audit. An auditor must refrain to engage in other roles within the management of the company that is audited, in order to avoid intentional or unintentional interference, which consequently could jeopardize the independence of the auditor’s

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

This essay will discuss the ethical code that has major influence on audit failure and what scholars are saying towards auditor’s credibility and auditor’s code of ethics because when a company goes bankrupt the auditor’s independence is questioned and shaken (Moore et al 2006). It will also show what legislative body governing auditors are doing because users of financial statement are searching for auditors whose obligations covers: report of correct records, assurance that the financial statement is of true and fair view, company guards against errors and fraud, auditors are abiding by the rules and so on (Percy 2007).

This essay will discuss the ethical code that has major influence on audit failure and what scholars are saying towards auditor’s credibility and auditor’s code of ethics because when a company goes bankrupt the auditor’s independence is questioned and shaken (Moore et al 2006). It will also show what legislative body governing auditors are doing because users of financial statement are searching for auditors whose obligations covers: report of correct records, assurance that the financial statement is of true and fair view, company guards against errors and fraud, auditors are abiding by the rules and so on (Percy 2007).

Auditing standards in UK and Ireland, including Ethical Standards, International Standards on Auditing and International Standard on Quality Control, are enacted for audits of financial statements. The content of these standards includes objectives for the auditor, requirements and application and other explanatory material.

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.

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.

In conclusion, audit independence is and will continually be an essential component to credibility to external audit, as a monitoring instrument (Sucher and Bychkova, 2001). It is recommended that audit independence should be justified through its compliance with standards and ethical guidelines. Thus, independent body like APB in UK or ISB in US should be given more accountability to monitor auditors' activities, develop standards or guidelines which are relevant to independence, ensure compliance with standards and conduct investigations or researchs to study areas pertaining to auditor's motivation towards

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.

“Advocacy threats occurs when members promote a position or opinion on behalf of a client to the extent that the subsequent objective may be compromised” (CPA 2013)

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 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

The role of internal audit is to provide independent declaration that an organization’s threatadministration, governance and internal control processes are functioning effectively. Internal auditors deal with concerns that are essentially important to the existence and success of any organization. Unlike external auditors, they aspect beyond financial possibilities and statements to reflect wider problems such as the organization’s reputation, development, its power on the location and the approach it treats its organizations.In summary, internal accountantssupport organizations to thrive.