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Auditing and Accounting Cases: Investigating Issues of Fraud and Professional Ethics 3rd Edition by Jay Thibodeau,Deborah Freier
Edition 3ISBN: 978-0078110818Auditing and Accounting Cases: Investigating Issues of Fraud and Professional Ethics 3rd Edition by Jay Thibodeau,Deborah Freier
Edition 3ISBN: 978-0078110818 Exercise 1
What is auditor independence, and what is its significance to the audit profession? What is the difference between independence in appearance and independence in fact?
Explanation
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Audit refers to an independent examination of an organization's accounts. The Auditor shall ensure that his opinion on financial statements is reflecting the actual state of affairs of the company and the company has not indulged into any sort of fraudulent financial reporting.
Decisions are made by the users of the financial statements on the basis of Audited accounts.
Auditor's independence assumes key importance in conducting an audit of accounts as it is essential for the auditor to give an unbiased opinion.
Auditor's profession assumes great importance in the corporate world as the users depend solely on the audited financial statements in order to invest or enter into transactions with the company, in such a case it is necessary that the financial statements depict the true picture of the organizations operations.
In order to grant loans Banks and other financial institutions depend on audited financial statements of the organization amongst all other necessary documentations. Hence the auditor has to ensure that he performs the audit in good faith.
The independence of auditor is a pre-requisite for good corporate governance. Professional accountants should be independent both in fact and in appearance while providing auditing and other attestation services.
Significance of Auditor's Independence:
1. Independence of auditor is a matter of public confidence in the audit process.
2. The audit committee needs to consider all of the relationships between the auditor and the company, the company's management and directors.
3. The auditor must be independent for the entire engagement period and the period covered by the financial statements
4. The auditor should be independent to ensure that the auditor's opinion will not be influenced by any relationship between the organization and the auditor.
Independence in fact indicates:
1. The state of mind of an auditor.
2. Independence in fact is when you are genuinely independent from the client.
3. It exists when the auditor is actually able to maintain an unbiased attitude throughout the audit.
Independence in appearance indicates:
1. Appearance refers to what other people would perceive as being independent. For example, if you Audit a company and your brother is a CEO or Chairman you would be perceived not to be independent.
2. It is dependent on others' interpretation of this independence and, consequently, their faith in the auditor.
3. Activities which may not affect independence in fact, but which are likely to affect independence in appearance are: Ownership of a financial interest in the client, Performance of accounting services and audits for the same company,dependence upon a client for a large percentage of audit fees.
.
Decisions are made by the users of the financial statements on the basis of Audited accounts.
Auditor's independence assumes key importance in conducting an audit of accounts as it is essential for the auditor to give an unbiased opinion.
Auditor's profession assumes great importance in the corporate world as the users depend solely on the audited financial statements in order to invest or enter into transactions with the company, in such a case it is necessary that the financial statements depict the true picture of the organizations operations.
In order to grant loans Banks and other financial institutions depend on audited financial statements of the organization amongst all other necessary documentations. Hence the auditor has to ensure that he performs the audit in good faith.
The independence of auditor is a pre-requisite for good corporate governance. Professional accountants should be independent both in fact and in appearance while providing auditing and other attestation services.
Significance of Auditor's Independence:
1. Independence of auditor is a matter of public confidence in the audit process.
2. The audit committee needs to consider all of the relationships between the auditor and the company, the company's management and directors.
3. The auditor must be independent for the entire engagement period and the period covered by the financial statements
4. The auditor should be independent to ensure that the auditor's opinion will not be influenced by any relationship between the organization and the auditor.
Independence in fact indicates:
1. The state of mind of an auditor.
2. Independence in fact is when you are genuinely independent from the client.
3. It exists when the auditor is actually able to maintain an unbiased attitude throughout the audit.
Independence in appearance indicates:
1. Appearance refers to what other people would perceive as being independent. For example, if you Audit a company and your brother is a CEO or Chairman you would be perceived not to be independent.
2. It is dependent on others' interpretation of this independence and, consequently, their faith in the auditor.
3. Activities which may not affect independence in fact, but which are likely to affect independence in appearance are: Ownership of a financial interest in the client, Performance of accounting services and audits for the same company,dependence upon a client for a large percentage of audit fees.
.
Auditing and Accounting Cases: Investigating Issues of Fraud and Professional Ethics 3rd Edition by Jay Thibodeau,Deborah Freier
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