The purpose of an audit to enhance the credibility of a financial enhancements by providing reasonable assurance from an independent source that present a true and fair view in accordance with an accounting standard. In addition to the technical competence, auditor independence is the most important factor in establishing the credibility of an audit opinion. In doing this, they provide comfort to external users of these statements that what they are reading has been prepared in accordance with all the accounting and other mandatory and professional requirements.
By Josephine Haste Let me take you back to your time at university. Do you remember when you would diligently attend your audit lectures and madly scribble notes on every word the lecturer said?
The quality review program continues to find members who have failed to comply with this most critical accounting principle. So what is independence and why is it at the cornerstone of every audit that is conducted?
In financial terms, this means that the auditor should not have any dependency on the client by either personal affiliation or financial reliance.
An auditor who fulfills these criteria is regarded as independent.
This could be a problem to the point where it is unlikely that any safeguards would ensure that the audit opinion is seen as objective, even if an independent auditor would have drawn the same conclusions from an examination of the entity. Looking at the relationship between the auditor and the client, every individual may perceive an arrangement differently, and this is where professional judgement comes to the fore.
As a guiding principle, perceived independence is when a third party looking into the arrangement would consider the auditor independent from the client. When faced with a perceived independence issue, an appropriate consideration is materiality.
Auditing small entities - regional workshop In Australia, there is an abundance of literature on auditor independence. To compile a risk assessment on the topic, the place to start is the principles enshrined in law.
These are the legal requirements that impose the greatest risk to an accounting practice. The independence requirements applying to auditors are legally enforceable and are located within the following legislation and standards: Divisions 3, 4 and 5 of Part 2M.
This provides practical, case-based scenarios to help practitioners assess issues of independence that they may encounter. For each example given below, state whether you think the accountant is independent or non-independent and, if the accountant is non-independent, whether that non-independence is actual or perceived.
The accountant has their domestic partner, who is also an accountant, sign off on their trust account audit.
A sole practitioner employs a staff member who holds a public practice certificate. The RCA engaged has no public practice certificate or public liability insurance. A firm with three partners has one partner responsible for the compilation of accounts and another partner responsible for signing off the audit.
A small firm accepts a large audit engagement where the fees associated with the audit will comprise 85 per cent of the total fee revenue for the firm. You may consider these examples to be great works of fiction, but in fact they are taken from case findings from the quality review program.
All of these examples are real concerns for auditors. How did you score on the test? Independence Guide, 4th edition February Objectivity and Independence of External Auditor Updated: 20 Mar The independence of external auditors is essential to the provision of an objective opinion on the truth and fairness of the financial statements.
Independence of external auditor By: shubham kanchhal Auditor independence refers to the independence of the auditor from parties that may have a financial interest in business being audited. Independence requires integrity and an objective approach for the audit process. Audit Independence: Its Importance to the External Auditor's Role in Banking Regulation and Supervision Ojo, Marianne (): Audit Independence: Its Importance to the External Auditor's Role in Banking Regulation and Supervision.
The independence of external auditors is essential to the provision of an objective opinion on the truth and fairness of the financial statements.
The independence of external auditors is essential to the provision of an objective opinion on the truth and fairness of the financial statements. As such, the Audit Committee is mandated to ensure continuing objectivity and independence of the external auditor. It is important for external auditors to be independent because external auditors act on behalf of the owners of the business, normally the shareholder, and report on the financial statements prepared by management for the benefit of shareholders. The financial audit remains an important aspect of the corporate governance that makes management accountable to shareholders for its stewardship of a company. External auditor may however, have a commercial interest too. The debate surrounding the role of .
As such, the Audit Committee is mandated to ensure continuing objectivity and independence of the external auditor. Independence of external auditor By: shubham kanchhal Auditor independence refers to the independence of the auditor from parties that may have a financial interest in business being audited.
Independence requires integrity and an objective approach for the audit process. The Importance of External Auditor’s Independence According to Gillespie, Lewis and Hamilton () an audit is: “a scrutiny of the accounts by a qualified auditor who carries out checks on the figures so as to establish whether the accounts show a true and fair view of the results and the financial position of the entity.”.