External Auditors Must be Independent Essay

External Auditors Must be Independent Essay

Length: 1153 words (3.3 double-spaced pages)

Rating: Better Essays

Open Document

Essay Preview

2001. It was the year that every individual; man, woman and children on Earth would remember. There was the September 11 event which was considered the worst terrorist attack that has happened in U.S. history, killing a total of 2, 977 people. And not long after that, in the business world, on December 2, the greatest corporate failure was exposed. The crash of Enron in US, followed by the worldwide collapse of its auditor, Arthur Andersen became one the most popular accounting scandal where it is still being talked about even after a decade has passed. Following this scandal, other massive organizations like WorldCom (2002), AIG (2004), and Satyam Computer Services (2009) shared the same fate. Since then, there have been questions being asked on the issue of the independence of auditors being one of the major contributors to these accounting scandals.

Firstly, it’ll be good to know the definition of auditing. Auditing is the process of evaluation and analysis of business records to determine the accuracy or safety or just to ensure that organizations are maintaining honest financial records and statements. Whereas certain corporations rely on audits conducted by their own employees – whom are called internal auditors – other corporations would utilize the use of external auditors. External auditors are certified audit professions who examine financial records and business transactions in accordance with a fixed set of laws or rules of a company, government corporate, and other legal entity where he/she is independent of the entity being audited. In both cases, typically, auditing is simply the process of accumulating and evaluating evidences about various assertions contained in a financial statement of a company for the purpo...


... middle of paper ...


...uditor’s independence. Independence, in my opinion, is the basis of an auditor’s line of work. Without independence, the opinions of these auditors would lack the impact and also the credibility. Major accounting scandals would have been avoided had they had a proper independent auditor who not only will deter against fraud but also provide protection against casual mistakes arising from failure to follow proper procedures or simply because of honest accounting mistakes. In order to enhance auditor independence, directors are advised to disclose the audit and non-audit services fee to investors and let the investors themselves evaluate the independence of the auditor. Thus in conclusion, external auditors lead to an increased trust between a firm and their clients, an enhanced reputation which could be built by good credibility of the business and fraud prevention.

Need Writing Help?

Get feedback on grammar, clarity, concision and logic instantly.

Check your paper »

Essay on Importance of External Auditors

- 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 i...   [tags: business]

Better Essays
1117 words (3.2 pages)

Essay on The Evolution of The Concept of Auditing

- Introduction Audit is a word derived from the word Auditus, from Latin, which means “a hearing”, past participle of audire “hear”. To hear or see whether an event is true. This outlines the work of auditors in general. The Audit activity has been in place since 4000 BC, where it mainly focused on checking of financial transactions. Later it developed to a modern verification activity during the industrial revolution. Thereafter auditing was introduced in America where foreign investors demanded independent checks on financial soundness of companies’ records....   [tags: hearing, auditors, internal, external]

Better Essays
1042 words (3 pages)

Essay on Corporation Internal Auditors

- Internal auditors should work closely with the audit committee to establish the audit department's responsibilities, and the board and management should support those duties. However, internal audit processes can sometimes be ignored by the top management, who may chose to focus time and resources on areas they deem to be more pressing to bottom lines. It is the responsibility of the internal auditor to put proper control measures. (Metricstream, n.d) Independence Independence is the freedom from conditions that threaten the ability of the internal audit activity to carry out internal audit responsibilities in an unbiased manner....   [tags: Relevance, Plan, Outsourcing]

Better Essays
1180 words (3.4 pages)

Legal Regulation of Corporate Governance in the Role of Auditors Essay

- INTRODUCTION In recent years, general public start to raise questions about the level of audit independence and the quality of audit information, especially after corporate collapses such as HIH, Enron and One.Tel where independent audit reports showed that the companies were making a profit, when in fact they were heavily in debt. This essay is to provide a brief overview of the current regulation of corporate governance in Australia in the role of auditors, and illustrate some gaps in the regulation with examples....   [tags: corporate governance, auditor regulation]

Better Essays
1966 words (5.6 pages)

Essay on Analyzing the Audit Risk in Complex Technology

- Many organizations are growing frequently. Potential risks should not be taken kindly. These auditors’ entities would have a clear understanding of the potential consequences that can increase the audit risk on how to insure positive outcomes. Firms would increase their experience to virtualization their relationships with consumers, suppliers, and partners. Auditors would need to experience a trusting and assurance relationships. The greater pressure would be independent auditors was to indicate trust and assurance....   [tags: Auditors, e-commerce Strategy]

Better Essays
2225 words (6.4 pages)

Advising Managers On Issues Of Financial Reporting And Accountability Essay

- 2.2.3 Advising Managers The auditors are tasked with the responsibility of advising managers on issues of financial reporting and accountability in the daily operation of a company (Ahmad and Taylor, 2009). The corporate board of directors and top managers are faced with an evolving landscape of corporate governance regulations and requirements (Burnaby et al., 2009).This has implication on the day to day operation. Therefore there is need for auditors to advise managers on various aspect of financial reporting....   [tags: Auditing, Audit, External auditor]

Better Essays
2304 words (6.6 pages)

The Audit Planning Process An Auditor Must Complete Sufficient Background Research

- Question 3 A) Planning is significant, if a business is targeting an efficient, consistent and 'true ' and 'fair ' audit report. Therefore, in order to participate in the audit planning process an auditor must complete sufficient background research. There are various sources that will provide information that would be valuable. First of all, financial statements from previous years of Dust&Rolls could be revised in order to understand the financial position of the company; assets, liabilities, income and the expenses stated in former reports....   [tags: Auditing, Audit, Internal control]

Better Essays
895 words (2.6 pages)

Essay on External Auditor Versus Internal Whistleblower

- External Auditor versus Internal Whistleblower: Who is More Effective in Deterring Fraud. Fraud and financial improprieties occur in all businesses: private, public, governmental agencies, and not-for-profit organizations. Fraud leads to a loss of company properties through illegal means that cost companies nearly a billion dollars annually (KPMG Peat Marwick LLP). (#9) The Center for Audit Quality published a report identifying the key players responsible for the mitigation of fraud risk to the investing public and other stakeholders as the board of directors and audit committee, the internal and external auditors, and the company’s management....   [tags: Auditing, Audit, External auditor, Fraud]

Better Essays
1949 words (5.6 pages)

The Importance of Auditors in the Job Market Essay

- As more companies are being established in Indonesia, auditor has become one of the most demanded positions in the job market. Companies need auditors to examine financial reports and to help the companies in managing risks and securing their financial condition. According to a researcher at Economic Modeling Specialists International, Auditor is the second most demanded professions in most of the countries in the world (Berita Satu, 2012). Therefore, being an auditor is a good choice for those who want to have a promising career....   [tags: companies, fanancial, risks, external, internal]

Free Essays
609 words (1.7 pages)

The Fundamental Duty Of An External Financial Audit Essays

- QUESTION 1: Auditors’ Duties and Responsibilities 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. Required: Identify and explain (in your own words) the key requirements that an auditor must follow in order to meet the “reasonable skill, care and caution” criteria in an audit of a Financial Market Conduct (FMC) reporting entity in N...   [tags: Auditing, Audit, External auditor]

Better Essays
2202 words (6.3 pages)