External Auditors Must be Independent

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...

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...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.