Why Is It Important for External Auditors to Be Independent?
Why is it important for external auditors to be independent? Relate your answer to the primary role of external auditors? By Zachariah Godfrey-Plews
This essay has asked me to look at the importance of external auditors and why it is vital for them to remain independent. I will try and look at the many ways of the advantages of independent auditing from different perspectives for example the company itself, the general public and the state. I think it is important to first define what an audit and an external auditor to be able to answer this question effectively. Firstly an audit is (1)“an accounting procedure under which the financial records of a company or individual are closely inspected to make sure that they are accurate.” An independent or external audit is carried out by a neutral third party, such as a professional accounting firm which specializes in audits. Typically in both cases without fail the financial records of that company will be checked by the auditors this includes payroll, official published reports accounts payable etc. The auditors check for any discrepancies and if any are found then they have to get sorted immediately and possibly in the most extreme cases criminal action could be taken. I feel that this topic is a very important one and especially at present because as we have just come out of a recession there are going to be many companies that will have been tempted to perform creative accounting and therefore manipulate their figures to their advantage to possibly drive investment by raising their share price or possibly even give confidence in their company that they’re not going to reach bankruptcy therefore it is the external auditors job to spot this and to make sure that there is no wrong doings present.
Auditor independence is essentially the process to which the auditor’s integrity is at stake and the objective approach of the auditing process. (2) “To be credible, an auditor’s opinion must be based on an objective
This essay has asked me to look at the importance of external auditors and why it is vital for them to remain independent. I will try and look at the many ways of the advantages of independent auditing from different perspectives for example the company itself, the general public and the state. I think it is important to first define what an audit and an external auditor to be able to answer this question effectively. Firstly an audit is (1)“an accounting procedure under which the financial records of a company or individual are closely inspected to make sure that they are accurate.” An independent or external audit is carried out by a neutral third party, such as a professional accounting firm which specializes in audits. Typically in both cases without fail the financial records of that company will be checked by the auditors this includes payroll, official published reports accounts payable etc. The auditors check for any discrepancies and if any are found then they have to get sorted immediately and possibly in the most extreme cases criminal action could be taken. I feel that this topic is a very important one and especially at present because as we have just come out of a recession there are going to be many companies that will have been tempted to perform creative accounting and therefore manipulate their figures to their advantage to possibly drive investment by raising their share price or possibly even give confidence in their company that they’re not going to reach bankruptcy therefore it is the external auditors job to spot this and to make sure that there is no wrong doings present.
Auditor independence is essentially the process to which the auditor’s integrity is at stake and the objective approach of the auditing process. (2) “To be credible, an auditor’s opinion must be based on an objective