Auditor Audit Report

EXECUTIVE SUMMARY

This report provides an identification and explanation of threats to auditors’ independence and the legal and ethical requirements to minimise and eliminate the threats. The primary aim of the report is to understand auditors’ independence, what affects the independence, the safeguards available and the legal requirements, such as the Companies Act 2006.

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Auditors have a role to report an independent opinion regarding the truth and fairness of financial information presented to them by management which enhances the financial reporting system. The need for independence arises because, generally, users of financial statements do not have all the information necessary to judge the objectivity of the auditor. Auditors must not

Salehi (2009) states that external auditors have a role to monitor the performance of the company on behalf of the shareholders to ensure the truth and fairness of financial statements by giving an independent audit opinion. Thus, reducing the risk of management manipulation, concealment and boosts the credibility of the financial information provided for

The Wall Street Journal addresses the relationship between Enron and Arthur Andersen, its auditor. The business press states that Andersen’s auditors and consultants had a permanent office space at Enron’s headquarters and not only do they dress like they were employed by Enron, they often went on Enron’s company trips. Due to the close personal relationship, Andersen might not have challenged Enron’s accounting issues due to the threat of intimidation where the auditor fears of being replaced or having their audit fees reduced, thus risking independence.

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2.2 Legal requirements

Under the independence requirement of the CA 2006, an auditor of a company must not be regarded as an employee or officer of the company and therefore should not be treated as one. In the case of Enron and Andersen, where the auditors were regarded to be Enron’s employees, the Act has been breached.

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2.3 Ethical