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The auditors should not overlook bad accounting practices rather provide in his audit report how the practices are leading to deviations from the standard applied in the industry. Back to … Importance of Audit Independence for Shareholders Shareholders are the direct beneficiary of companies and they will get more bonuses if the companies operate successfully. The author Gupta (1999) is of opinion that is auditor is not independent of management; his opinion would mean nothing to shareholders, prospective investors, bankers, government agencies, and others who are concerned with the financial statements o… The threats to audit independence arises from the following sources : The importance of audit independence is enhanced due to the existence of various threats as mentioned above. The auditors are expected to give an unbiased and honest professional opinion on the financial statements to the shareholders. A 20-page booklet called Guidance for Audit Committees: Discussing Auditor Independence Matters is available for free download from the CICA. What is the difference between independence and objectivity? Importance of the Opinion of Independent External Auditor. An independent auditor is a person with an accounting credential who does not have any affiliations with the company upon which he or she offers an opinion. An independent auditor is typically used to avoid conflicts of interest and to ensure the integrity of performing an audit. Hence, in the cases where the auditor is unable to adopt an independent approach towards the audit process, the opinion issued might not be valid, and cannot be relied upon. They do not have existing relationships with any other employees, do not have a feel for how things have always been done and do not have an interest in protecting Joe in accounting or Suzy in management. Independence and objectivity go hand in hand. In the case of an event where the auditor feels that their independence is at stake, they should ideally report it to their managers, so that relevant steps can be taken. In the audit of the financial statements, the opinion of an independent external auditor has always been extremely important in the audit of money laundering prevention due to the independence that the auditor should have in relation to the company in question. When it comes to auditors’ opinions, it can be seen that auditors are supposed to make sure that they execute the audit process in order to deliver the best possible results. As a matter of fact, the audit process is supposed to be taken seriously by the organizations because of the high level of dependence it holds for other relevant stakeholders that are involved in the accounting process. What impairs the independence of an auditor? In this perspective, it is not important to ask what an honest and honest auditor is. The concept of independence means that the auditor is working independently carrying out the objectivity of his audit performance. The auditor should be independent from the client company, so that the audit opinion will not be influenced by any relationship between them. External auditors are preferred to internal auditors because they have no … Advocacy threats exist as auditor promotes opinion to the point where objectivity is compromised. In recent months, there have been plenty of service “hiccups.” In one example, WageWorks’ audit committee in October 2018 fired KPMG as its auditor following an independent investigation of WageWorks’ accounting practices, financial statement reporting, and internal control over financial reporting for fiscal years 2016 and 2017. What impairs the independence of an auditor? This is important because the bank and the creditors check the auditor’s statement on the company’s financial records before they lend any amount to the organization. Therefore, this causes them to suffer significant financial losses, because of the lack of independence of the auditor.eval(ez_write_tag([[580,400],'wikiaccounting_com-box-4','ezslot_10',105,'0','0'])); Therefore, in order to keep the interests of the shareholders and investors intact, it is quite important for auditors to maintain an independent approach. In other words, are the statements reasonably accurate. Linkedin. Independent auditors serve their clients in numerous ways one of which is to render an opinion on whether or not the financial statements prepared by a client are fairly stated. The same thing happened in the case of Arthur Andersen handling Enron where it completely collapsed after the scandal. In this regard, it enables him to muster the courage to question the company, and the officials, in case something is missing in the financial statements, or something should be added on. Independence is the main means by which an auditor demonstrates that he can perform his task in an objective manner.The Need For Auditor Independence. (Definition, Explanation, Journal Entry, and Example). • A lack of independence seems to mean that important audit work may not be done, and thus shareholders are not receiving value for the audit fees. Importance of Audit Evidence. If it is the duty of an auditor to express his independent opinion on the financial statement furnished to him, the data produced by the accounting system alone (e.g., journals, ledger, manuals, worksheets) are not sufficient to base his opinion. The auditors must opine on financial statements as per his capability … Although many recognize that the audit profession plays an essential role in the functioning of the global capital markets and adds value to the roles played by other stakeholders in the financial reporting process, … This restores their confidence, and therefore, gives them a reason to invest in the company. Twitter. The most important conclusion of the case study was that in all cases, the reasons that led to express modified opinions, was detailed in the auditor’s report, this being considered as a reference guide for the future auditor’s missions, as well as, a recommendation for improving the highlighted aspects. •To explain importance of auditor independence and practical implications for auditor in meeting demands of audit role. Your input on these issues is extremely important to the Board. First and foremost, auditors must appear independent in order for users of financial information to have confidence in the opinion given and the quality of the information audited. The primary function of the auditor is to provide opinion on the financial statements in an unbiased manner and not to detect frauds. It forms to be a very useful and concrete decision-making criterion by these stakeholders since it gives them confidence that the financial statements and other relevant information has been checked upon by the auditor. Google+. Independence became an issue after corporate scandals such as Enron. It is a legal obligation for an external auditor to be … This video is unavailable. Role of the Independent Auditor. 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. In addition to technical competence, auditor independence is the most important factor in establishing the credibility of the audit opinion. The auditors are expected to give an unbiased and honest professional opinion on the financial … Such dependence on audit reports requires audit work to be independent of influences that can cloud his professional judgment. The report is essential to the integrity of the reporting process. Auditor’s independence refers to the independent working style of the auditor being unbiased, unfettered, uninfluenced, and being fully objective in performing audit responsibilities. Independent auditing has been an important part of the corporate monitoring system since the mid-1930s, when it became a legislation requirement after the Great Depression. Types of Audits: 14 Types of Audits and Level of Assurance, Audit Reports: Types of Audit Reports | Advantages | Limitation. 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