Auditor Independence - 2

Topics: Internal control, Audit, Big Four auditors Pages: 7 (1984 words) Published: February 3, 2010
Independence is a fundamental to the reliability of auditors’ reports. It is an attitude of mind characterized by integrity and an objective approach to professional works. A professional auditor should work both independent and seen to be so. Nowadays, but, the trend of providing non-audit services to audit clients seem to be sweeping accounting firms all over the world; impacts of independence impairment caused by this trend should not be ignored.

The Meaning of Independence
The essential feature of an audit is its independence and, if an accountant performs the accountancy work and then checks it himself, this checking cannot be viewed to be an audit because it lacks independence. From ACCA’s Code of Ethics, the definition of Independence is composed of independence of mind and independence in appearance.

In general, independence means an auditor’s opinion must be based on an objective without bias and disinterested assessment of whether the financial statements are presented fairly in conformity with generally accepted accounting principles.

The Importance of Independence in relation to the provision of assurance The value of audit derives entirely from its independence. Without independence, auditors’ opinions lack impacts and credibility. The relationship between the auditors and audit clients, however, gives a potential threat to the independence. Influencing Auditors’ Reports on Clients’ Financial Position due to Conflicts of Interests: Possibilities of conflicts of interest between firms and clients, where situations such as, connections of an audit firm with associated firms, family and other personal relationships, financial interests in audit client, employment with audit clients, provision of non-audit service to audit clients, may consequently affect auditors. Without the strength of character to withstand such pressure, auditors may be unable to express independent opinions.

Preserving Investors Confidence in the Financial Market
Public confidence in the capital market relies heavily on the appearance of auditor independence. Auditor independence helps to ensure quality audits and sustain the circulations of investment with the capital market. Investor confidence is eroded if investors and other users of the financial statement information do not perceive that the auditor was independent in both fact and appearance.

Giving Constructive Advice
Although there is no formal obligation, a good auditor will be anxious to offer his client assistance on improvements in the financial aspects of the business if he can give an unbiased independent opinion, where added value is brought to clients and to the wider business community.

Lowering Litigations
Sustaining independence enables the auditors to objectively report on True and Fair Value of any information required to be disclosed in financial accounts, of which the chances of successful negligence lawsuit to a level acceptable will be reduced.

The Nature of other services provided by the auditors
In the classification from APB, non-audit services is composed of any engagement where an audit firm provides professional services to an audited client other than the audit of financial statements, and pursuant to those other roles which legislation or regulation specify can be performed by the auditor of the entity.

There are five different natures of non-audit services categorized by activities arising directly from an audit of a company’s financial statements, services required to be provided by the auditor by laws, services provided by auditors because of their familiarity with the client and, as a consequence, their ability to perform them in a timely and cost effective manner, services provided because of the pool of accounting and related financial skills available to accountancy firms, services provided because of the pool of consulting and general business skills available to...
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