Auditors need to be unbiased due to the nature of the work it imparts. The auditors must opine on financial statements as per his capability and within the boundaries of the code of conduct which protects his independent state of mind. The external auditor is bound by legal obligations to be independent. When they do not comply with legal rules and regulations, it could lead to fines, jail time, and the penultimate the collapse or downfall of the audit firm as it is happening with Pricewaterhouse Coopers in India after Satyam Fiasco.
The same thing happened in the case of Arthur Andersen handling Enron where it completely collapsed after the scandal. There is a strong statement included in almost all of the code of ethics issued by the auditing bodies over the world. The primary function of the auditor is to provide opinion on the financial statements in an unbiased manner and not to detect frauds.
However, when circumstances lead to frauds, the auditors must investigate that scenario thoroughly. 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.
In the case where the auditor independence has been compromised upon, and they are not able to give a free and fair view regarding the company, it results in investors losing their money.
Therefore, this causes them to suffer significant financial losses, because of the lack of independence of the auditor.
Therefore, in order to keep the interests of the shareholders and investors intact, it is quite important for auditors to maintain an independent approach.
It also adds to their credibility and reputation in the future. This is because in the case where they declare a clean report regarding a company, and the company then defaults, their credibility would be at stake because they had audited these financial statements in the first place.
Hence, it is vital for them to take this engagement seriously so that it does not cloud their judgment because of a lack of independence. Auditor independence directly impacts the decision that is issued by the auditors. In the case where their judgment is impaired, they might not be able to give a free and a fair few, and therefore, this would result in bigger damage to the overall ecosystem, in the longer run. This is helpful when settling trade disputes for higher wages, bonuses or dealing with claims regarding property damage, fires etc.
Independent audits determine whether books and records have been properly kept and help the company to be aware of any discrepancies. Useful administration: Audited statements of account are helpful for a variety of administrative purposes. Settling liability for taxes, negotiating loans, determining the purchase consideration for a business or settling accounts in the case of the death of a partner. Audited and certified statements may also be required by the government, before granting assistance or a trade licence.
Our auditing services at Exceed We can offer our clients our independent auditing services as we provide you with external accounting functions and therefore we are a public accounting firm, not connected to your business.
When are companies required to be independently audited by law? Apply here. Accepted file types: doc, docx, pdf, Max. We use cookies to ensure that we give you the best experience on our website. Press ESC to cancel.
Skip to content Home Research Paper Why external auditor independence is important? Research Paper. Ben Davis June 1, Why external auditor independence is important? What is auditor independence and why is it important? Why is the role of the independent auditor so important? What is auditor independence PDF? What do you mean by auditors independence? How do auditors maintain independence? What can impair auditors independence?
Why auditors must declare their independence? What are five types of threats to independence? What are threats to independence?
0コメント