Independence of auditing - Essay Example

Add to wishlist

Summary

An independent auditor is defined as “a Certified Public Accountant who provides a company with an accountant’s opinion, but who is not otherwise affiliated with the company” (Investorwords.com). Public interest in, and discussion about, the specific functions of auditors…

Download full paper File format: .doc, available for editing

GRAB THE BEST PAPER97.1% of users find it useful

Read Text Preview

Subject: Miscellaneous
Type: Essay
Level: Undergraduate
Pages: 4 (1000 words)
Downloads: 3
Author: qschumm

Extract of sample "Independence of auditing"

Download file to see previous pages

The accuracy and reliability 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, but also to erode confidence of shareholders, making them doubt the authenticity of the reports published (Hermes.co.uk). The global auditing world is ruled by 5 auditing firms (called the Big Five) that have the capability to audit the largest public companies in the world.

They are PriceWaterhouseCoopers (PwC), Klynveld, Peat, Marwick, Goerdeler (KPMG), Ernst & Young (E&Y), Deloitte & Touche (D&T), and Arthur Andersen (AA) {Europa.eu, 2002}. The Big Five attained their structure and position as a result of several mergers with other auditing firms (the last major merger involved Price Waterhouse and Coopers & Lybrand, who formed PriceWaterhouseCoopers, thereby trimming the Big Six to Big Five {Europa.eu, 2002}). After the Enron scandal in 2001, AA was struck off the Big Five list with the result that there are now the Big Four audit firms.

Within the U.K, PwC is the largest audit firm, although by a worldwide comparison, the Big Four are almost evenly matched (Oxera.com, 2006). Public concern about the independent status of auditors stems from the trend of audit firms to diversify to other non-audit services

...Download file to see next pages Read More

CHECK THESE SAMPLES OF Independence of auditing

Enron Corporation Scandal

Arthur Andersen was charged with impediment of justice because of destroying documents, erasing emails and files that were affiliated to his auditing firm dealings with Enron.... Student Professor Course Date: Enron Corporation Scandal Enron Inc.... is a multinational company dealing with the production and supply of commodities and services across Houston, Texas....

6 Pages (1500 words) Essay

Sarbanes Oxley Act

Scenario3 wishes to find out whether or not an outside auditing firm must report directly to the "internal auditing committee" of a public corporation.... It is a law for all public that set the standards for all the United States of America's public companies board, the management and all the public accounting firms....

4 Pages (1000 words) Essay

Issues Related To The Auditor Independence

Intimidation threats such as coercion the owners of the firm will hinder the independence of the auditor.... independence cannot be absolute since the auditor is appointed, and paid by the client.... The writer of the paper "Issues Related To The Auditor independence" discusses different threats that occasion impairment on an auditor's objectivity such as the self-interest threats.... Self-review threats also present threats to independence while advocacy threats may present unbiased opinions on the financial position of the firm....

4 Pages (1000 words) Research Paper

The Role of Safeguards in Strengthening Independence

The independence of the auditing body in the business environment is of paramount significance to the smooth running of financial operations.... The International Organization of the security commission (2002) states that the role of client in appointing the auditor provides a weakness in the independence of the audit results.... The auditing should comply with the stated standards to ensure that the financial statements provided by these bodies reflect the true picture that exists within the organization....

4 Pages (1000 words) Essay

Generally Accepted Auditing Standards (GAAS)

In the United States, the American Institutes of Certified Public Accountants have prescribed Generally Accepted auditing Standards in order to facilitate fair auditing procedures.... These auditing standards mostly deal with what auditors should be performing, how they should do the fieldwork and what they should report.... These auditing standards specify that audition function should be done by qualified auditors with appropriate technical skills and proficiency, free from such mental attitude that may obstruct auditing process and should have the capability of giving independent opinion on the books of accounts and accounting practices followed....

4 Pages (1000 words) Essay

The Sarbanes-Oxley Act Law

The spirit of the law intends to ensure the objectivity and Independence of auditing firms by not assuming a dual role of being an auditor and a management consultant.... This would be prevented with the Sarbanes-Oxley Act because the law stresses Auditor Independence that establishes the independence of external auditor to limit the conflicts of interest.... Conflict of interest leads to losing independence of audit report that lead to their audit certification of a company's overstated earnings and thereby distorting the market by not reflecting the true financial position of its players....

2 Pages (500 words) Essay

Auditing

The non-audit services affect the Independence of auditing directly as they affect how the audit is carried out.... Non-audit services increase the quality of auditing in any organization (Reckers, 2003).... The quality of auditing is increased, as the auditors are aware that the documents in the organization have been scrutinized.... Audit services provide the shareholders of a company with professional information and opinion on whether their company financial statements reflect the actual state of affair as they are on the ground (Lehman,… For these reasons, the topic will be of research to determine and explore the independence of auditors in terms of the audit quality, non-audit service fees, and non-audit service (Campbell and Houghton, 2005). Non-audit services are professional services provided by a Auditing Auditing Auditing is a very crucial activity in any successful organization....

1 Pages (250 words) Literature review

Audit Standards Important for Auditors

The need for ethical code arises in case of auditing; as the accountants are needed to work with respect to the public interests and they hold the position of trust in the society.... International Federation of Accountants (IFAC) is responsible for setting the standards of auditing that are likely to be followed internationally (International Federation of Accountants, 2006; Kaplan Financial Limited, n.... auditing Firms May Legitimise Their Status by Appealing To Profession The fundamental… The code of ethics of International Federation of Accountants is essential because the profession is based on public interest and the task performed by auditors extending beyond The International Federation of Accountants (IFAC) has set ethical standards for the accounting profession that includes integrity, objectivity and confidentiality linked with the auditing profession and many more....

10 Pages (2500 words) Essay