The same thing happened in the case of Arthur Andersen handling Enron where it completely collapsed after the scandal. Independent auditing has been an important part of the corporate monitoring system since the mid-1930s, when it became a legislation requirement after the Great Depression. The Independent auditor’s report is the general statement from the auditor stating that whether the financial records are in maintenance according to the standards of the Generally Accepted Accounting Principles (GAAP). My board chair wants to change audit firms to one where a friend of hers is a partner. They rely on the auditor’s independence and objectivity to ensure that audit opinion has been expressed to reflect the books of account. Objectivity means that the auditor shall perform a balanced assessment of all relevant circumstances. There are numerous different reasons as to why auditor independence tends to be pivotal for the audit process, to say the least. What is a prepayment? Independent auditors serve their clients in numerous ways one of which is to render an opinion on whether or not the financial statements prepared by a client are fairly stated. It requires auditors to make effective communication as and when required by it as per legal compliance or otherwise. As a guiding principle, perceived independence is when a third party looking into the arrangement would consider the auditor independent from the client. Self-review threats are a threat when auditor realizes the consequence of past judgment and advice by himself or other staffs of the firm. Auditor independence simply means the ability of the auditor to adopt an approach with integrity and objectivity within the audit process. The auditors should not overlook bad accounting practices rather provide in his audit report how the practices are leading to deviations from the standard applied in the industry. In addition to technical competence, auditor independence is the most important factor in establishing the credibility of the audit opinion. Your input on these issues is extremely important to the Board. However, we shall discuss various bullet points in detail to know about when is independence in audit important. When the auditors are independent or in a free state of mind, they can easily work in an unbiased manner contributing towards higher objectivity and professional achievement.eval(ez_write_tag([[300,250],'wikiaccounting_com-banner-1','ezslot_1',106,'0','0'])); Just like the doctors who are trusted to protect lives, the auditors are in the line of work to protect the stakeholders from the corruption of management, unfair accounting practices, and so on. The primary function of the auditor is to provide opinion on the financial statements in an unbiased manner and not to detect frauds. I have been asked to address the importance of the role of the auditor to the capital markets; the role of the PCAOB in investor protection; and to highlight a few issues that the Board is considering. It also adds to their credibility and reputation in the future. Looking at the relationship between the auditor and the client, every individual may perceive an arrangement differently, and this is where professional judgement comes to the fore. In the audit of the financial statements, the opinion of an independent external auditor has always been extremely important in the audit of money laundering prevention due to the independence that the auditor should have in relation to the company in question. Independence and objectivity go hand in hand. The auditor should be independent from the client company, so that the audit opinion will not be influenced by any relationship between them. The importance of audit independence is enhanced due to the existence of various threats as mentioned above. Hence, requirements are there for auditors to be independent of influences that could cloud the professional judgment of auditors. The auditors are highly regarded in the money world conserving and protecting the interests of all stakeholders involved in the entity. The author Gupta (1999) is of opinion that is auditor is not independent of management; his opinion would mean nothing to shareholders, prospective investors, bankers, government agencies, and others who are concerned with the financial statements o… •To define auditor independence. Chercher les emplois correspondant à Importance of independent auditor ou embaucher sur le plus grand marché de freelance au monde avec plus de 18 millions d'emplois. In this regard, it is also important for them to realize how crucial it is for the auditor to be independent and execute the process in an effective manner. But sometimes the client may influence the auditor, which results in the issuance of the incorrect report by the auditor. The auditor … email. Submitted. There is a strong statement included in almost all of the code of ethics issued by the auditing bodies over the world. Auditor independence ensures an unbiased perspective and allows financial statements to be more reliable. Twitter. External auditors are preferred to internal auditors because they have no … Although many recognize that the audit profession plays an essential role in the functioning of the global capital markets and adds value to the roles played by other stakeholders in the financial reporting process, … However, when circumstances lead to frauds, the auditors must investigate that scenario thoroughly. It provides the auditor’s expert opinion as to whether decision makers should feel safe in … Audit independence is an attitude of mind characterised by integrity and an objective approach to the audit process (Baker, 2005). Auditor independence is commonly referred to as the cornerstone of the auditing profession since it is the foundation of the public's trust in the accounting profession. In conclusion, auditor independence remains an important element when individuals are conducting an audit. ” According to Wikipedia (2011a), auditor independence refers to “an attitude of mind characterized by integrity and an objective approach to the audit process”. About this article -Written By: Jane. External auditors provide important and valuable insight into the information that exists within an organisation. In this regard, it is also important for them to realize how crucial it is for the auditor to be independent and execute the process in an effective manner. Fall 2013 Section 04 September 17, 2013 – Case #1: The importance of being independent (by Deloitte) Discussion Questions One of the key roles of the external auditor is to protect the interest of the public. 20/11/2009 - 9:30am The economic meltdown of the past two years has seen unprecedented redemptions from funds and other investments and a rush to liquidity - bringing to light a string of scandals including frauds, Ponzi schemes and other types of embezzlement that had been hidden during the boom years. What is the difference between independence and objectivity? It is critical for an auditor to be independent of the firms they audit due to many reasons. November 1, 2010. Also, the … In the case of an event where the auditor feels that their independence is at stake, they should ideally report it to their managers, so that relevant steps can be taken. The auditor’s opinion enhances the credibility of the financial statements. 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