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Auditing & Accounting Ethics - Essay Example

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Earlier concepts of the auditor independence arose during the 19th century, were based on the assumption primarily that a principal duty of professional accountants and auditors was the oversight of absentee investments in the existing and former colonies of the British Empire.
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Download file "Auditing & Accounting Ethics" to see previous pages... The concept of auditor independence during this era did not conceive of auditors as advocates for audited entities; British investors explicitly forbade auditors from investing or working in the businesses that they audited. At the same time, as long as auditors maintained their primary loyalty to the investors back home,
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the scope of professional accounting services could be reasonably broad. For example, auditors were permitted to keep the books and prepare the financial statements for the entities they audited (Hayes, Dassen, 2005 p.87).
At the same time that independence requirements are becoming increasingly important, the auditing profession is tilting a changing landscape that is requiring the profession to face complex and difficult issues. Two of these changes have particular relevance for auditor independence: First, there has been a dramatic escalation in competition to obtain and hold onto auditing business. And second, auditors now often find themselves part of huge national (even multinational) organizations that offer a literal supermarket of nonaudit services and present greater opportunities for potential conflicts of interest. Let me discuss each of these phenomena in turn (Hayes, Dassen, 2005 p.87-88).
An honest auditor will behave like someone who is independent, using independence to mean an attitude of mind that does not allow the viewpoints and conclusions of its possessor to become reliant on or subordinate to the influence and pressures of conflicting interests.
There is an expectation that the auditor will have performed an audit that will have reduced the chances of a successful negligence lawsuit to a level acceptable to the auditor. In the language of economics, the auditor will perform audit work until the cost of undertaking more work is equal to the benefit the auditor derives in terms of the reduction in the risk of a successful lawsuit being possible. This then represents the minimum amount of work that the reader can expect the auditor to perform. However, all auditors are individuals with different attitudes to risk and return and so one auditor's minimum standard of audit work will not necessarily be that of a colleague (Hayes, Dassen, 2005 p.88).
This economic argument, while logical, would be unsustainable if certain auditors took advantage of the general presumption regarding auditor independence in order to obtain increased market share. In other words, for the economic argument to be effective, complete compliance with the principle of auditor independence would be required.
In a general sense, auditor independence has borne a relationship to the prevailing commercial environment in different time periods. ...Download file "Auditing & Accounting Ethics" to see next pagesRead More
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