Independence Auditor Independence. This case can also be used to discuss auditor independence. Auditor independence has received significant attention in the U.S. Walter Schuetze, then Chief Accountant to the Securities and Exchange Commission (SEC), wrote a pointed commentary, “A Mountain or a Molehill?” Several other SEC speeches and commentaries followed until November 2000 when the SEC adopted new rules governing the auditor’s independence. The amendments modernize the Commission’s rules for determining whether an auditor is independent in light of investments by auditors or their family members in audit clients, employment relationships between auditors or their family members and audit clients, and the scope of services provided AU Section 230, “Due Professional Care in the Performance of Work,” indicates that professional skepticism is an attitude that includes a questioning mind and a critical assessment of audit evidence. Section 230 also indicates that, “The auditor neither assumes that management is dishonest nor assumes unquestioned honesty. In exercising professional skepticism, the auditor should not be satisfied with less than persuasive evidence because of a belief that management is honest” (paragraph .09). Therefore, an audit team must objectively evaluate observed conditions and audit evidence, and follow up any potentially negative indicators to determine whether or not financial statements are free of material misstatement.
Question 2 (a) What factors in the auditor-client relationship can put the client in a more powerful position than the auditor? (b) What measures has and/or can the profession take to reduce the potential consequences of this power imbalance?
(a) The following factors can lead to a power imbalance between the client and the auditor:
• Clients, typically financial management, select the auditor, determine the compensation, and have the authority to terminate the auditor. • To conduct an effective audit, the auditor must maintain a good working relationship with the client. In fact, the auditor must have the client’s assistance, and the auditor is often in a position where the auditor must rely on the client to provide needed
Independence Certified Public Accountants (CPA) perform many important services for individuals and companies, public or private. One essential assurance engagement a CPA performs is an audit of financial statements. Audits of financial statements play a vital role in the business industry. An auditor can reasonably assure investors, lenders, management, and stakeholders that the financial statements are free from material misstatement and accurately reflect the accounting of the entity for that…
Internal Audit and the Relationship with Senior Management Summary: The case study “Internal Audit Reporting Relationships: Serving Two Masters” was a part of a series of research projects being developed by the Institute of Internal Auditors to determine the various relationships, specifically reporting relationships between the internal auditor and those charged with governance. To obtain research about the various types of reporting relationships, independence, conflicts that arise from…
of internal auditing III. Profession guidance on independence and objectivity IV. Consulting services: a challenge to audit independence? V. Independence vs. Objectivity VI. Conclusion VII. Bibliography I. Introduction The internal auditor occupies a unique position he or she is employed by the management but is also expected to review the conduct of management which can create significant tension since the internal auditor's independence from management is necessary for the auditor to objectively…
E 1-17 D 1-18 D 1-19 C 1-20 A 1-21 A 1-22 B 1-23 E 1-24 C Review and Short Case Questions 1-25 The objective of external auditing is to provide opinions on the reliability of the financial statements and, as part of an integrated audit, provide opinions on internal control effectiveness. The value of the external auditing profession is affirmed when the public has confidence in its objectivity and the accuracy of its opinions. The capital markets depend on accurate, reliable, and…
SOLUTIONS FOR MULTIPLE‑CHOICE QUESTIONS 2.26 a. Correct Gathering audit evidence is a component of the performance principle. b. Incorrect While reasonable assurance is related to gathering audit evidence, this is not one of the categories of principles c. Incorrect The reporting principle relates to the contents of the auditors’ report d. Incorrect The responsibilities principle relates to the personal integrity and professional qualifications of auditors. 2.27 a. Incorrect Due care is related…
1. INTRODUCTION The term audit derived from audire, the Latin word which means to hear. The objective for auditing has changed overtime according to the needs and expectation of society. ISA 200 defines that the aim of audit is to provide a true and fair view in accordance with the applicable financial reporting framework. Auditing plays a significant role in detecting and preventing fraud or other financial crime. There was lots of breathtaking news relating to absence of effective auditing. For…
includes to prepare a report regarding financial and non-financial issues and is to be presented at the end of every reporting period. They will conduct an audit committee that will contain directors and external consultants, and together they will outline a report and a financial statement. Later on, this financial report needs to be assessed by an audit company or an individual auditor who will make sure the information provided is correct. Mainly, this report will consist of a business review, which…
Abstract The purpose of this article is to discuss and determine what are the function and effect of competence and independence of auditor on the audit quality. In the other word, there should be the relationship and interaction among competence and independence of auditor as well as the audit quality. First of all, it is known that competence of auditor is referring to the individual characteristics and abilities which contribute the effects on the success and the actions to be taken for any circumstances…
Professional Conduct are: (1) Principles—goal-oriented and aspirational guidelines which address members' responsibilities, the public interest, integrity and objectivity, independence, due care, and the scope and nature of services. (2) Rules—more detailed regulations which support the principles. 3-5 The categories of threats to independence include (only three required): (1) Self-review—Using as a part of the attest engagement evidence that was obtained on a nonattest engagement. (2) Advocacy—Actions…
Importance of External Auditor’s Independence According to Gillespie, Lewis and Hamilton (2004:221) 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.” According to Wikipedia (2011a), auditor independence refers to “an attitude of mind characterized by integrity and an objective approach to the audit process”. Independent auditing…
