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Auditing and Accounting Cases 4th Edition by Deborah Freier,Jay Thibodeau
Edition 4ISBN: 978-0078025563Auditing and Accounting Cases 4th Edition by Deborah Freier,Jay Thibodeau
Edition 4ISBN: 978-0078025563 Exercise 1
Consult PCAOB Ethics and Independence Rule 3520. 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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PCAOB, expanded as Public Company Accounting Oversight Board, provides standards for Auditing and standards for related Professional Practice.
PCAOB Ethics and Independence Rule 3520 speak about the independence of auditors and associates of registered firms dealing in public accounting. It is the obligation of an accounting firm to apply all independence criteria to any audit engagement including rules and regulations under federal security laws.
Auditors Independence means a person is a member in practice should work independently without any influence of the client while performing an audit or any attestation function.
The significance of auditor's independence can be that disciplinary action is instated against the member in practice for lack of independence by regulators and/or professional bodies and also can be followed by litigation by those who took decisions trusting on the financial statements (clients and investors).
A member in practice can be independence in fact and independence in appearance which can be understood as given below.
Being independent in fact, an auditor should have intellectual honesty and sincerity; and a state of mind of an impartial judiciary , integrity, and objectivity that recognizes an obligation of just treatment to management, creditors, futuristic creditors or owners, owners of an audit client and other stakeholders.
Being independent in appearance means, the auditor shall not have any interests and obligations (be in the client or the management, or the owners of the client entity) that can lead to others believing that the auditor is unfairly prejudicial with respect to the client, the managers, or even the owners of the client entity.
When the auditor does not have any related financial interest being direct or indirect or any obligation with the client in real, the audit firm must assure that none of its behavior or actions appear to deplete the auditor's independence in the eyes of the general public. When behavior affects auditor's independence, it is considered as equivalent to a breach of independence in fact.
PCAOB Ethics and Independence Rule 3520 speak about the independence of auditors and associates of registered firms dealing in public accounting. It is the obligation of an accounting firm to apply all independence criteria to any audit engagement including rules and regulations under federal security laws.
Auditors Independence means a person is a member in practice should work independently without any influence of the client while performing an audit or any attestation function.
The significance of auditor's independence can be that disciplinary action is instated against the member in practice for lack of independence by regulators and/or professional bodies and also can be followed by litigation by those who took decisions trusting on the financial statements (clients and investors).
A member in practice can be independence in fact and independence in appearance which can be understood as given below.
Being independent in fact, an auditor should have intellectual honesty and sincerity; and a state of mind of an impartial judiciary , integrity, and objectivity that recognizes an obligation of just treatment to management, creditors, futuristic creditors or owners, owners of an audit client and other stakeholders.
Being independent in appearance means, the auditor shall not have any interests and obligations (be in the client or the management, or the owners of the client entity) that can lead to others believing that the auditor is unfairly prejudicial with respect to the client, the managers, or even the owners of the client entity.
When the auditor does not have any related financial interest being direct or indirect or any obligation with the client in real, the audit firm must assure that none of its behavior or actions appear to deplete the auditor's independence in the eyes of the general public. When behavior affects auditor's independence, it is considered as equivalent to a breach of independence in fact.
Auditing and Accounting Cases 4th Edition by Deborah Freier,Jay Thibodeau
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