An understanding of the independence of an auditor in an organization

why auditor independence is important

Competitive bidding for contracts has also encouraged the reduction of auditor engagement hours. In reviewing management's process, the auditor considers whether the company has established effective procedures to reduce the risk of errors or fraud.

Understanding the audit process itself helps elucidate the value of the end product.

what are the five key requirements for auditor independence

How Independent Auditors Work An independent auditor either works for a public accounting firm or is self-employed. By acting as the professional skeptic, investigating, researching and, when necessary, throwing up yellow caution lights and stop signs along the road, a good auditor builds a strong foundation of trust with management and the audit committee.

Since the Cadbury Reportthis practice has been implemented yet many still remain unconvinced of the neutrality of non-executive directors.

How to improve auditor independence

Although the increased transparency that can result from this can be very beneficial, it can also be confusing to investors. For public companies, management also explains its financial results through management's discussion and analysis as part of its annual and quarterly filings. Without the discipline of an independent audit, without the professional skeptic on the scene, without ready access to an objective and a knowledgeable advisor, how could we expect results to remain the same? An auditor may perform various auditing, tax, and consulting services for individuals, corporations, nonprofit organizations, or government entities. The views expressed in this article are those of the authors and do not necessarily reflect those of Deloitte LLP or any other organization with which they have been associated. The use of independent auditors became more critical after the implosion of the dotcom bubble and the passage of the Sarbanes-Oxley Act SOX in Shareholders are not likely to be sympathetic to auditors in such circumstances either as they may be likely to see auditors as unnecessarily overcharging for their service. This could lead to the manipulation of figures and exploitation of accounting standards. In addition, we have highlighted the fact that each of the principal players has a responsibility in the financial reporting and governance regime; that complementary interplay and responsibility to the investing public is essential to help promote investor confidence through reliable financial statement information. Over time, however, it is plausible to assume that the quality of financial reporting would decline. As it has in the past, the profession will do so — meeting not only the known challenges, but also the unknown as they unfold.

Auditors must be free to approach a piece of work in whatever manner they consider best. By performing the audit without independence the shareholders may get misled, as the auditor is now reliant on the directors.

Through the course of these consultations, the auditor has acted as a professional skeptic, and acted as a knowledgeable advisor to management, resulting in a conclusion that better informs investors.

As, in most cases, auditors do not examine every transaction, control and event, there is no guarantee that all material misstatements, whether caused by error or fraud, will be detected.

auditor independence threats
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Auditor independence