Independence of Auditing

Topics: Auditing, Internal control, Audit Pages: 4 (1009 words) Published: June 19, 2012
In recent years, as the collapse of some renowned companies, the issue of audit independence turns to be more and more concerned by the international regulators. Independence is the cornerstone of the auditing profession, and auditor’s opinion is suspect if lack of independence. However, in some circumstances, some potential threats of audit independence would be generated as jointly provision of non-audit and audit services to the audit client. Although it will create threats to independence, some non-audit services also could be provided by external auditor if the auditor could have a better control of services provides.

According to Section 323 of Corporation Act, auditor has the power to gain information from the audit client and the audit client must provide information or other assistance to the auditor concerning the consolidated financial statement being audit. Therefore, there is no denying that auditor would master the audit client’s business, its policies and its procedures through the information she or he obtained. Moreover, the auditor also has the professional knowledge in respect of corporate management or finance which might benefit the audit client. Thus, the provision of auditing and non-auditing services to the audit client would generate potential and real threat to audit independence.

Five independence threats are illustrated by Section 290.41 of the Code of Ethics, which are Self-interest threats, self-review threats, advocacy threats, familiarity threats and intimidation threats. The most significant threats which are created from jointly provision of audit and non-audit service would be self-interest and self-review threat. To be specific, the self-interest threat happened when an external auditor has the self-interest conflict with the audit client. For example, this kind of independence threat rises when the audit client promise to pay for external auditor in the circumstance when the external auditor provide material non-audit...
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