Auditors Independence

Only available on StudyMode
  • Download(s): 620
  • Published: May 18, 2011
Read full document
Text Preview
WHY IS AUDITOR INDEPENDENCE SO IMPORTANT?
Auditing is the efficient critical examination done by one person or group of people’s independent from the system audited. To do an audit, confirmed information must be present and some standards by which the auditor can evaluate the information. Another is gathering and evaluating any information to determine whether the information being audited is identified in accordance with establish criteria to satisfy the purpose of the audit and also auditors must be competent to identify the types and amount of evidence to accumulate to reach the correct conclusion after the evidence has been examined and finally the preparation of the audit report, which is the communication of the auditor’s findings to user. Auditor independence is the main aspect affecting audit quality. Public accountants or accounting firms that perform audits of commercial and non-commercial financial entities are called independent auditors and has duties to use a reasonable care and skill, be independent of the company, statutory duties to report to members and to ASIC and lastly to comply with auditing standards and other professional standards. A contractual relationship happens when an auditor accepts an offer with the company and an engagement letter is signed by the auditor and client. The auditor maintains professional relationship with Management, board of directors and audit committee, internal auditors and stockholders in financial statement audit. Independence is one of the auditor’s most vital characteristics and it is often said that it is important to the reliability of auditors’ reports. It is also the basic requirement for an audit although absolute independence is impossible, auditors strive to maintain a high level of independence to keep the confidence of users relying on their reports. Those reports would not be credible, and investors and creditors would have little confidence in them, if auditors were not independent with the two types of auditing independence namely independence in fact and independence in appearance. According to John L. Carey, ‘independence, both historically and philosophically, is the foundation of the public accounting profession and upon its maintenance depends the profession’s strength and its stature.’ ‘It has been said that audits add value to financial statements by improving their reliability; add value to the capital markets by enhancing the credibility of financial statements; enhance the effectiveness of the capital markets in allocating valuable resources by improving the decisions of users of financial statements; and assist to lower the cost of capital to those using audited financial statements by reducing information risk.’ [Independence Standards Board, A Conceptual Framework for Auditor Independence, Discussion Memorandum (February 2000)] “The reason why the audit was done is basically to learn more about what is going on and to correct mistakes.” (Modzeleski 2006)

DISCUSS THE INTERACTION OF AUDIT INDEPENDENCE WITH FINANCIAL REPORTING IN AUSTRALIA. Professional accountants and auditors should have ethical responsibilities. They must maintain a high ethical standard in order to maintain public confidence in the accountancy profession. One of the code of ethics which is the Part A (General Applications of the code) forms the important ethical principles that apply to all members as well as guidance on the threats and safeguards concerning those fundamental principles. These five fundamental principles that auditors are required to abide are (1) Integrity, being straightforward and honest in all professional relationships. (2) Objectivity, not allowing bias, conflict of interest or undue influence of others to override professional or business judgments. (3) Professional competence and due care, maintaining professional knowledge and skill at the level required to make sure that a client or employer receives competent professional service based on...
tracking img