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The Role of Safeguards in Strengthening Independence - Essay Example

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The Role of Safeguards in Strengthening Independence

However as the client is paying the auditors, thus the sheer freedom of the auditors cannot be absolute. The importance of autonomy of auditors and the inherent risk of not being totally self-determining raises many of the issues where safeguards where suggested in order to minimize the threat to the sovereignty of the auditors. Although auditors cannot be completely liberated from the client however there are certain measures, which brings the dependency of the auditors to an acceptable level. Independence Independence of the auditors is compulsory in order to assure that the opinion that auditor provide is free from biases. Auditors provide reasonable assurance upon the financial statements of the company where the auditor expresses the opinion whether the financial statements are free from material misstatement and all applicable standards were followed (Cai, 1997). The assurance regarding the independence of auditors must be affirmed, though not completely but to an acceptable level (Silvia, 2010), by providing safeguards upon the issues that threatens the auditors’ independence. ...
The safeguards provided in order to minimize the threat to the independence of the auditors are categorized differently. The safeguards provided ensure that the threats to the independence of auditors are minimized to the acceptable level. Absolute Prohibition The independence of the auditors is strengthen when there is complete prohibition is provided regarding the financial and non-financial interest of the auditor to the client. When the auditor is completely prohibited of possessing any type of interest in the client the independence increases (Peter, 2004). The framework completely restricts the client and auditor to possess any type of relation whether business or personal. The restriction is imposed upon activities that are to be carried out between the client and the auditor. Permitting But Restricting the Extent In several cases the framework permits the auditor to continue with the activity with the client but the extent of the activity and relationship with the client is limited (Richard & Claude, 2012). Financial restrictions are imposed where the auditor is not allowed to have material financial interests in client so the independence of the auditor is brought to an acceptable level. Permitting and Requiring Policies to Mitigate Threat The framework safeguards the independence of the auditors where the framework allows the auditor for the relationship and activity with the client as it shall be for the benefit of both the parties. The allowance of continuity of relationship and activity is followed by the policies, which are to be formed, implemented and followed in order to provide assurance that the auditors are independent from the client. The policies should be such formed so as to affirm the independence of the ...Show more

Summary

Role of Safeguards In Strengthening Independence Name ID Table of Contents Introduction 3 Independence 3 Safeguards 4 Absolute Prohibition 4 Permitting But Restricting the Extent 4 Permitting and Requiring Policies to Mitigate Threat 5 Permitting and Disclosing 5 Other Measures 5 Peer Review 6 Enhancing Internal Controls 6 Internal Audit Committee 6 Conclusion 7 References 8 Role of Safeguards In Strengthening Independence Introduction The independence of the auditors is one of the major concerns for ensuring quality audit services…
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