Auditor independence refers to the independence of the external auditor. It is characterised by integrity and requires the auditor to carry out his or her work freely and in an objective manner.
What is auditor independence and why is it important?
Audit independence is important so that auditor’s opinion can be impartial, unbiased, free from any undue influence or conflict of interest to override the professional judgement of the professional accounting (Rutgers Accounting Web, 2015).
Why do auditors need independence?
The auditor should be independent from the client company, so that the audit opinion will not be influenced by any relationship between them. The auditors are expected to give an unbiased and honest professional opinion on the financial statements to the shareholders.
How do auditors ensure independence?
The SEC rules on audit independence are often organized into five key areas: (A) Prohibited Non-Audit Services; (B) Audit Committee Pre-Approval of Services; (C) Partner Rotation; (D) Conflict of Interest; and (E) Increased Communication and Disclosure.
What are the types of Auditors Independence?
There are three main ways in which the auditor’s independence can manifest itself.
- Programming independence.
- Investigative independence.
- Reporting independence.
What can impair auditor independence?
The following are the five things that can potentially compromise the independence of auditors:
- Self-Interest Threat.
- Self-Review Threat.
- Advocacy Threat.
- Familiarity Threat.
- Intimidation Threat.
Why should I be an auditor?
Auditors involved in assurance work use their specialised industry and financial knowledge and analytical techniques to get an in-depth understanding of organisations and how they function. They then use this understanding to give them advice to help them thrive in their particular marketplace, now and in the future.
What is the purpose of an independent auditor?
What is Auditor Independence? Auditors are expected to provide an unbiased and professional opinion on the work that they audit. An auditor who lacks independence virtually renders their accompanying auditor report useless to those who rely on them. For example, consider yourself a potential investor in ABC Company.
How are auditors affected by lack of Independence?
An auditor who lacks independence virtually renders their accompanying auditor report useless to those who rely on them. For example, consider yourself a potential investor in ABC Company. If you know that the auditor for ABC Company keeps a close, personal relationship with the CEO
How to deal with threats to audit independence?
Before an audit engagement, it is crucial that each member of the audit team review the five threats to independence. If an auditor is exposed to a certain threat, he or she should either develop safeguards to reduce the threat to an acceptable level or resign from the audit engagement.
What happens if a company has a bad audit?
A bad audit might lead the company to stop using that auditor, or could force a company out of business, and there is a clear disincentive for auditors to cut off available sources of income. This might lead an auditor to be less than scrupulous in the process of investigation and reporting.
