Nobody downloaded yet

Auditing and why independence is important - Essay Example

Comments (0) Cite this document
Auditor's independence is a particularly prominent issue. Carey, J. L., (1970) mentioned 'independence, both historically and philosophically, is the foundation of the public accounting profession and upon its maintenance depends the profession's strength and its stature'.1 The word 'independent' was first used in conjunction with 'accountant' in the same sense as in the phrase 'independent contractor' not subject to another's authority…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER95.5% of users find it useful
Auditing and why independence is important
Read TextPreview

Extract of sample "Auditing and why independence is important"

Download file to see previous pages Carey, P. & Simnett, R. (2001) stated that in auditing theory and practice, independence is a matter of intellectual honesty. Auditors are expected to be unbiased and impartial with respect to financial statements and other information they audit. They are expected to be fair to both the companies and executives who issue financial information and to the outside persons who use it. Independence is important enough to stand alone as a concept. The public will grant social recognition of professional status to auditors only so long as they are perceived to be independent.
The notion of individual independence is more specific in the conduct of each audit engagements. In essence, an individual auditor must not subordinate his or her judgment to others and must stay away from influences that might bias judgment.3
Loebbecke, A. (2000) argued that actual threats have to be considered on the situations that might be perceived as threats by a reasonable and informed observer. Where such threats exist, the auditor must put in place safeguards that eliminate them or reduce them to clearly insignificant levels. Safeguards apply at three levels: safeguards in the work environment, safeguards that increase the risk of detection, and specific safeguards to deal with particular cases. If he is unable to implement fully adequate safeguards, the auditor must not carry out the work.

Gupta, K., (2006) mentioned that ethical guidance based on this framework includes examples of threats that might arise and appropriate safeguards to deal with them. But these are illustrative and not comprehensive. The auditor must be able to demonstrate that, in the particular circumstances under consideration, the fundamental principles had in fact been observed - a far more rigorous test of compliance.

The framework approach is considered the most appropriate to adopt as:
The aim of good guidance should be proactive, i.e. to require the auditor to identify and address risks, not merely passively obeying the letter of the code.
A set of principles supported by reasoned guidance avoids the argument that any course of conduct that is not specifically prohibited is permissible, encouraging a search for ways around the rules.
The approach recognizes the reality that the auditor is not wholly independent of his client, but that the threats to independence must be managed to clearly insignificant levels.
Although the basic principles of auditor independence are straightforward they may need to be applied to an almost infinite number of circumstances. The detailed rules-based approach will have to be incomprehensibly complex to cope with all possible circumstances, or will be a blunt instrument, sometimes imposing inappropriate solutions or completely missing the problem.
The business environment and structure of audit firms and their clients are continually evolving particularly in an international context.
Clients and shareholders are generally allowed to choose the auditors to perform other work if they believe it is most efficient for them to do so, where adequate safeguards can be put in place. Nonetheless, where adequate s ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
(“Auditing and why independence is important Essay”, n.d.)
Retrieved from
(Auditing and Why Independence Is Important Essay)
“Auditing and Why Independence Is Important Essay”, n.d.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Auditing and why independence is important


...globally and have to work simultaneously in different parts of the world. Internal audit processes followed by different organisations are also experiencing profound changes as a result of technical changes caused by globalisation. These changes can have both merits and demerits associated with the auditing process. Some auditors might perceive it as an opportunity and the others might experience difficulties in keeping pace with these changes (Mustata, Matis & Bodea, 2007). Globalisation has an impact on the Internal Control Systems of organisations and auditing of the internal control systems are an important task of internal auditors of the organisation....
7 Pages(1750 words)Essay


...circumstances: if it is a requirement in a legal proceeding, if it is a professional requirement, and to protect public interest in a situation where the fraud is discovered. ii. Wendy has been practicing as an auditor of Ace Limited audit for a number of years and subsequently appointed for the post of secretary, after the retirement former Secretary. When conducting an audit function, auditors are required to be objective and independent in their judgement. If Wendy continued to act in this position, conflict of interest will arise; this is because she will be assessing her own work thus impairing the principle of objectivity. If Wendy wishes to carry on as a secretary, then she should...
3 Pages(750 words)Essay

Auditing,(True and Fair view and Independence) him, the truth and fairness was not established, since the independence of the Auditor was doubtful. Auditing as old as accountancy, “the worldwide success of accountancy firms were to a large extent based on growth of audit function” (Matthews: 2006, p1). Mathews (2006) traces it back to late nineteenth century in Britain. However, the survey of the history written about the auditing as compared to the accounting by Mathews is “remarkably” “little”. He further states that it had its existence from “mediaeval times” (Matthews, 2006), though its importance surfaced with the growth of trading and manufacturing companies. Audit...
4 Pages(1000 words)Essay


...balances for any inconsistencies, or reviewing and analyzing procedures used to carry out and to enter transactions. Analytical analysis is when a person scrutinizes financial statement in order to find any irregularities. This comprises comparison of financial and non-financial details. An analytical review is not as thorough as an audit (Puttick and Van Esch 735). #6. SAS 70 Report- any recent changes to this area SAS 70 is an auditing standard, which enables an independent auditor to assess and give an opinion on the controls of a service organization. The SAS 70 has the opinion of the auditor, and analysis of the controls used in the operation. User organizations and user auditors...
3 Pages(750 words)Essay


...Auditing Stagecoach Company is among the leading transport companies in the United Kingdom. The company is a quoted company and that means that it has to publish its financial reports on an annual basis. The reports are usually published so that the stakeholders of the company can use them. The stakeholders include the shareholders, government, and the employees of the company. In the preparation of the audited report, the auditor has to be aware of the risk areas that can be changed to make the financial statements of the company look more appealing to the stakeholders of the company (Emerson, 212).The risk areas include the following, 1. Overstating of revenues and the understating of expenses Revenues...
7 Pages(1750 words)Case Study

Independence of auditing in all engagement activities

...QUESION INTRODUCTION: All external auditors must be independence in all engagement activities. The external auditor should be independent in all his assertion and assurance jobs. Independence means that the auditor should not be affected the any person in the audit client's environment. The auditor issues paid to issue a qualified opinion. However, some auditors are forced to issue adverse opinion, disclaimer opinion if the situation warrants it. The Auditing Standard no. 2mandates that that there should be independence in mental attitude at all times during an audit. The factors that influence an auditor to present...
12 Pages(3000 words)Essay

Independence of auditing

...factor basically governs the shareholders’ relationship with the company, because such published account reports are the only indication about the company’s financial position (especially the soundness and proper functioning of its current investments), and as such, represents the basis on which the shareholders decide about investment in the company. Shareholders, therefore, need to be assured about the accuracy and reliability of the company’s published accounts. This is the reason why it is mandatory for companies to have their accounts checked by an independent auditor. High profile cases like the Enron debacle tend to not only lower the esteem of the auditing profession as a whole,...
4 Pages(1000 words)Essay

Auditing this may violate the law of confidentiality. As an alternative course of action to this violation the company should safeguard itself by appointing any close member from the company itself, like the internal auditor of the company. This way less chances will be there for the internal information of the company to leak out.2 Answer 2 i) Slipway Limited is in a situation where the company is facing constant decline for the past two years and the scope of cost cutting also seems difficult due to the purchase of imported machineries. These machineries were purchased so as to increase falling operations by carrying out the operations of the company more effectively. The bank providing loans to the company may be at whelm...
4 Pages(1000 words)Essay


...Table of Contents Audit Risks 2 Group Accounts 2 Foreign Currency 3 Intangible Assets 3 Provisions 4 Taxation 4 Intangible Assets: Increased Risks and Audit Procedures 5 Valuation 5 Impairment 6 References 8 Audit Risks The audit of the company Mobile Streams Plc. is followed by risks as the nature of the business tends to increase the risks. With the increased risk as per the operations of the company there are risks involved for the auditors where the auditors shall not be able to discover the material misstatements in the financial statements whether intentional or non-intentional (Philip & Michael, 2007). The risks involved in the audit of this company is analyzed and elaborated. The analysis of the management assertions... to what the...
8 Pages(2000 words)Essay


...Auditing Part A 054 words Part B: 778 words March 27, Introduction The audit process entails determining whether the Havelock Europa Plc financial reports are true or correct (Havelock Europa, 2013). Untrue and incorrect financial reports include erroneous financial statement amounts (Arens, 2011). Errors are unintentionally misstatements are due to human errors. On the other hand, fraudulent financial statements include figures that were intentionally inserted by one or more company employees, possibly conniving with the external auditors. The research delves on the five areas of heightened audit risk. Auditing must prioritize auditing financial...
8 Pages(2000 words)Assignment
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Essay on topic Auditing and why independence is important for FREE!

Contact Us