The Concept of Auditors' Independence

The Concept of Auditors' Independence

  • Submitted By: zhaynee28
  • Date Submitted: 05/01/2010 2:29 AM
  • Category: Business
  • Words: 1901
  • Page: 8
  • Views: 789



1. Explain the concept of auditors’ independence?

Auditor Independence
Auditor independence refers to the independence of the auditor from parties that have an interest in the financial statements of an entity. It is essentially an attitude of mind characterized by integrity and an objective approach to the audit process. The concept requires the auditor to carry out his work freely and in an objective manner. Independence is fundamental to the reliability of auditors’ reports. Those reports would not be credible, and investors and creditors would have little confidence in them, if auditors were not independent in both fact and appearance. To be credible, an auditor’s opinion must be based on an objective and disinterested assessment of whether the financial statements are presented fairly in conformity with generally accepted accounting principles.

The authors have risen whether is there really a substantial independence problem? It is important for an auditor to be objective and should be understood as quality of auditors to express truth as he sees it. However this implies perceptions of personnel which are difficult to capture for regulators. Perceptions differ from culture, religious and groups. This could lead to impair. The author also mentioned another pitfall on who’s the auditor? Is it the one who signs, the team, the partner or the audit firm?

This can also lead to unrealistic and disproportional effect. The authors have outlined some quality for auditor to be objectivity:
✓ The auditor liability exposure
✓ Quality Assurance Systems
✓ Systems of Professional Disciplinary sanctions
✓ Damage to brand name of the audit firm
The whole architecture of financial reporting must be considered when regulating auditor independence. A high quality audit is generally regarded...

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