What Classifies As An Impaired Audit Member ( Aicpa )

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.

Independence means procedures and structures are in place so as to minimize, or avoid completely conflicts of interest. In Sarbanes-Oxley Act, “independent” director is the one who does not accept any advisory, consulting and other compensation from the issuer and not an affiliated person of the issuer or its subsidiaries, except that he or she as a member of the audit committee based on their capacity.

Title II of Sarbanes-Oxley covers Auditor independence, it contains nine sections all covering different aspects of auditors’ independence. Section 201, Services outside the Scope of Practice of Auditors, details what activities are not allowed to be performed by auditors for a client if they are to be performing an audit for that client. Detailed in section 201 as prohibited in order to maintain auditor independence are legal and expert services unrelated to the audit, any investment advisement, investment banking services, management or human resource functions, internal audit outsourcing services, actuarial services, appraisal or valuation services, financial

To examine the issues raised when independent auditors accept key accounting positions with former clients.

It is not appropriate for auditors to trust executives of a client. Auditors must act

For any audit engagement APES 110 section 100.5 sets out five fundamental principles that all audit members must abide by (Gay & Simnett 2012, p. 86). They must act with integrity, objectivity and not allow bias. They need to ensure professional competence, confidentiality and comply with the relevant legislation (Gay & Simnett 2012, p. 86). As such one of the principle requirements for auditors is auditor independence from their clients. In Harris-Scarfe’s case, this was not possible because the deputy chairman used to be a partner at Price Waterhouse, the firm’s auditors (Buchanan 2004, p. 69).

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 accounting firm should avoid the close personal relationships between client personnel and members of an audit engagement team because of the requirement of independence rule in the audit engagement. There are some examples as followed:

An auditor’s ethics might be challenged while preforming an audit in various ways. For one thing, as the case states, the auditor is getting paid by the company to perform an audit. This alone may interfere with an auditor’s ethics in the sense that if he or she does not feel that they are getting paid enough, they might overlook some aspects of the financial statement in regards to the GAAP. Likewise, if an auditor is getting paid a large sum of money to do an audit, he or she may be more inclined to be more in favor of the company’s wants and not be a fair/unbiased auditor. Other factors which may affect and auditor’s ethics are having relations with someone in company management or being in contact or having relations with an investor of the company.

With all that having been said, it is safe to assume that auditors are not perfect; and commit ethical failure as the Arthur Andersen firm did with Enron. There are many ways or reasons

It is unlawful to “influence, manipulate, coerce or mislead” any auditor engaged in the performance of an audit (Center for Audit Quality, 2009). Purposefully rendering any financial statements fraudulent is severely punished under SOX. Therefore, independent audit firms should be able to perform their duties without any oversight from their clients.

Whether internal or external, auditing need to be truly independent. As global as the US housing market is, when auditors and business don’t play fair the world economy can crumble.

The complete destruction of companies including Arthur Andersen, HealthSouth, and Enron, revealed a significant weakness in the United States audit system. The significant weakness is the failure to deliver true independence between the auditors and their clients. In each of these companies there was deviation from professional rules of conduct resulting from the pressures of clients placed upon their auditors (Goldman, and Barlev 857-859). Over the years, client and auditor relationships were intertwined tightly putting aside the unbiased function of auditors. Auditor careers depended on the success of their client (Kaplan 363-383). Auditors found themselves in situations that put their profession in a questionable time driving them to

Auditors who do not perform independently will face the potential risk of losing professional credibility and being punished with fines or imprisonment. Moreover, auditors should act ethically in the interest of public and provide unbiased audit reports to the public, especially to those who will make future decisions based on these audited financial statements, such as investors, employees or lenders. It does not mean that the auditor could not behave in both parties’ interest at the same time, but when a conflict occurs between interest of public and that of management, auditors should choose to behave independently, keep audit work fair and honest, and ensure their work assists the public to make a right evaluation on the audited client.

Independent audits provide many different stakeholders with a level of confidence in the financial information being provided by a company. Decisions to invest in the company, provide financing to the company, or even work with the company are often make by relying on information audited by an independent firm so it is imperative that this information be accurate and reliable. Auditors must adhere to strict professional standards and maintain professional ethics in order to perform their duties with care. In addition, proper audit planning and risk assessment can help prevent scandals such as those that occurred at Enron and WorldCom.