More handpicked essays just for you.
Importance of auditor independence
Importance of auditor independence
Audit independence in fact is most clearly lost when
Don’t take our word for it - see why 10 million students trust us with their essay needs.
Recommended: Importance of auditor independence
In this part of the report we decided to talk about the topic of threats and safeguards, which auditor independence may face. As we mentioned earlier, auditor independence includes two main points: the first one is “independence of mind” and folloing that we have the “independence of appearance.”(The CPA Journal, 2006). Independence of mind is freedom of the threats that affects the auditor independence, which that by itself would be as a fact. Independence of appearance is when relationship, activities, or the circumstances it is not the way should be and after that we come to the point that, investors and other users of financial information will realize that an unacceptably high risk exists of an auditor lacking independence of mind. (The CPA journal, 2006). The information that just explained, wanted to bring the report to this point, besides all safeguards in works there are some threats or challenges that auditor independence will have in their jobs. To an auditor there are many threats that he/she has to overcome that compromise objectivity. CFA institute (Chartered Financial ...
The audit committee must certify that the company’s auditors are independent. The audit committee must approve all professional services provided to the company by its independent auditors and ensure that auditors do not provide to the company any of the specifically prohibited services identified by SOX, such as bookkeeping services. The audit committee must receive and analyze key items of information from the independent auditors. These items of information include auditors’ analysis of critical accounting policies adopted by the
Consult PCAOB Ethics and Independence Rule 3520. What is the auditor independence, and what is its significance to the audit profession? What is the difference between independence in appearance and independence in fact?
On the September 25, 2002 issue of BusinessWeekOnline.com, the Accounting Wars Powerful auditor-consultants are the target of Arthur Levitt’s crusade articles defined “Independence to mean, CPAs cannot audit their own or their partners' work….…..clear and honest information is dependent on the CPAs independence……an auditor must not have any financial stake in the health, or even survival, of a client company.”
The audit committee should respect the independent opinions from external auditors. Also, there should be certain amount of CPA in the Audit Committee of the Board.
Objectivity and independence is most related to the section 5062.2 of CA Accountancy Act because both focus on maintaining objectivity and be free of conflicts of interest in making professional decision. In addition, section 5062.2 shows that a CPA should not accept employment with the Corporation that they audited within last 12 months.
The independence of mind or independence in fact means Betty has to have a state of mind that allow her to form an opinion without bias due to influence that compromises professional judgment. By having an independence of mind allowing an individual to perform his or her audit work with integrity, as well as, maintaining her objectivity and professional skepticism behavior. However, in this case, she did not have an independence of mind since she trusted Toby and she enjoyed working with him since he is also a CPA because it is easy for her to work with him compare to her other clients who do not have the accounting background. As a result, because of long-term relationship and trust that Betty has with Toby, it influenced her decision about the audit opinion. Additionally, to be independent in appearance Betty and her audit team must show unbiased professional judgment when she reviews her clients ' financial statements. Betty had Problems with independence in appearance because in the case study shown me that she has become too close to her client, Toby. Therefore, all auditors have to maintain their professional skepticism as well as maintain independence in their mental attitude and also independence in appearance to provide an unbiased opinion on
When an audit engagement team suspects that independence has been lost, the situation should be taken care of immediately to reestablish independence. The definitions and rules presented by the AICPA should be used in accordance with the firm’s independence policies. The article inspiring this discussion concerns an employee of Ernst & Young in Indonesia violating PCAOB standards. The audit failure was during the audit of an Indonesian telecommunications company.
Integrity in the accounting profession involves adhering to the rules and principles of the profession. This includes remaining free of conflicts of interest and maintaining client relationships in which the accountant can remain objective in discharging his or her responsibilities. This requires independence in fact and in appearance as mandated under section 1.200.001.01, Independence Rule the AICPA Code. In other words, no one should be able to view the accountant as being biased with respect to a client’s financial reporting due to an improper client relationship. Lack of integrity in accounting practices has been, and continues to be, a key element in the downfall of many institutions which has hurt the public trust in the accounting
Audit Sampling is very important to auditor to make their audit because easy for auditor fulfill their job with give opinion and make a conclusion from the account balance. It is not practical for auditor to audit 100% of the items in the account balance, that why auditor apply for audit sampling to obtain audit evidence from the account balance. Audit Sampling is testing less than 100% of the item within a population on a company client to obtain and evaluate evidence about some characteristics of that population. Population means that the entire of set of data which sample are selected. The objective auditor apply for audit sampling is to provide a reasonable basis for auditor to draw a conclusion about population from which sample
Audit Risk is the risk that an auditor has stated an incorrect audit opinion on the financial statements. It may cause the auditors fail to alter the opinion when the financial statements contain material misstatement. The auditor should perform the audit to lower the audit risk to a sufficiently low level. In the auditor’s professional judgement, the auditor should appropriately state a correct opinion on the financial statement
4) . One of the largest bankruptcies in history was enabled by accountants hiding debt and destroying the evidence to avoid implication (Buckstein, part 2 pgs. 1, 2, and 3). These unfortunate events led to the need for increased scrutiny and regulations, including the Sarbanes-Oxley Act (Buckstein, part 3 pg 1). This legislation inspired the creation of the Canadian Public Accountability Board (CPAB) (Buckstein, part 3 pg 1). These changes have led to an increased awareness of the need for auditor independence as well as higher standards for accounting and business in general (Buckstein, part 3 pg 1). While these measures have helped to reassure the public, there is still the question of why Accountancy is not a protected
The fundamental duty of an external financial auditor is to form and express an opinion on whether the reporting entity’s financial statements are prepared in accordance with the relevant financial reporting framework. In discharging this duty, the auditor must exercise “reasonable skill, care and caution” (Lopes, J. in Kingston Cotton Mill Co 1896) as reflected in current legal and professional requirements.
The evolution of auditing is a complicated history that has always been changing through historical events. Auditing always changed to meet the needs of the business environment of that day. Auditing has been around since the beginning of human civilization, focusing mainly, at first, on finding efraud. As the United States grew, the business world grew, and auditing began to play more important roles. In the late 1800’s and early 1900’s, people began to invest money into large corporations. The Stock Market crash of 1929 and various scandals made auditors realize that their roles in society were very important. Scandals and stock market crashes made auditors aware of deficiencies in auditing, and the auditing community was always quick to fix those deficiencies. The auditors’ job became more difficult as the accounting principles changed, and became easier with the use of internal controls. These controls introduced the need for testing; not an in-depth detailed audit. Auditing jobs would have to change to meet the changing business world. The invention of computers impacted the auditors’ world by making their job at times easier and at times making their job more difficult. Finally, the auditors’ job of certifying and testing companies’ financial statements is the backbone of the business world.
The aim of this essay is to study the function of external auditors in order to analyze why it is important to be independent. The primary mission of external auditors is to review and evaluate all the financial records of a company or corporation. They provide an objective opinion on the organization’s financial statement and effectiveness of the accounting polices in order to help management to make decisions. If the independence of the external auditors is impaired, the public will doubt the quality of professional auditing services, and the consequence would be very serious, just like the bankruptcy of Enron led to the disorganization of Arthur Andersen, once a giant accounting company in the world. In order to maintain and increase the independence of external auditors, some activities should be undertake to avoid the overdue market competition in professional accounting industry and enhance the supervising ability of the regulators. .What follow is a detailed analysis of the association between external auditors and companies.
The major characters of the tradition audit are all information what is needed by auditors are on the paper and the manual calculators and without high communication technology. Auditors usually were limited by the place in the paper time. When a several people are working on the same auditing project for a client with offices in cities across the country, even worldwide, it takes a lots all time those auditors get the information which they need from the client, even there is risk paper information disappear for many reasons. on the another hand, mail paper information increase the auditing cost. The mistake caused by the manual calculators inevitably, no matter how fixed auditors concentrate on recalculate is, after all auditors are human. The global business become major in the modern business world, some example, several auditors who are in different locations are working a same auditing project, or auditors are in different city even country with the client, when there is issue among these auditors or between auditors and client, they only can communicate with each other by phone or be together and have meeting. Phone call can not make sure information been watched in the same time when the voice is talking about the issue, but having a meeting takes time and money make all people together, it increases auditing cost.