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The Role of Safeguards in Strengthening Independence - Essay Example
Author : madyson06
Finance & Accounting
Pages 4 (1004 words)
The independence of the auditing body in the business environment is of paramount significance to the smooth running of financial operations. The Auditing should comply with the stated standards to ensure that the financial statements provided by these bodies reflect the true picture that exists within the organization. …
While this is so, manipulation of the auditing bodies is completely inevitable as these bodies are appointed and paid by the client. However, it is possible to optimize independence by neutralizing the threats that put independence at stake. Some threats that affect independence include self interest threats, self review threat, management threats, advocacy threats, familiarity threats and intimidation threats. In this light, designing and deploying effective safeguards will increase the level of auditor independence to and ensure integrity in their work. This can be achieved through the mandatory auditor rotation, peer review, independent auditor appointing, free setting and formulation of effective audit committees.
Mandatory Auditor Rotation
Mandatory auditor rotation is the act of compelling all financial organizations to adopt and engage a different auditor each financial year to avoid the preference of a single auditor. Often, the management prefers to hire the same auditors every year to ensure that they are able to manipulate them to provide audit results that conform to the will of the management (Chung 2004, p. 8). This inclination of the audit results to the management's opinion undermines independence and reduces the integrity of the end results. In this view, mandatory auditor rotation will ensure that the familiarity and the management threats are suppressed and the audit bodies have a better chance to provide results that reflects the true image of the organization (Chung 2004, p. 8). According to Forbes (2013, Para. 2), the US House of Representatives voted for mandatory auditor rotation as one way of setting the audit bodies free from manipulation. ...