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Provision of Non Audit Services by the Auditor to the Audit Client Is a Threat to Auditors' Independence
Finance & Accounting
Pages 6 (1506 words)
Provision of Non Audit Services by the Auditor to the Audit Client is a Threat to Auditors' Independence. Evaluate the Seriousness of this Threat Compared With Other Threats to Auditors' Independence and Identify the Effective Means of Strengthening Auditors' Independence Table of Contents Table of Contents 2 1.Introduction 3 2.
Introduction The value of an audited financial statement depends on the auditor’s independence. Accounting scandals such as Enron of the United States as well as HIH Insurance of Australia have created doubts regarding auditor’s independence and the value of their audit. The familiarity that is developed from the long audit tenure and the economic dependence arising from the non audit services and social bond developed between the auditor and the auditor’s client through long-term association have raised questions regarding auditor independence (Carson & Simnett, 2006). Non Audit Services (NAS) are also identified as ‘management advisory services’. Regulators believe that non audit services provided to audit clients is a serious threat to the auditors’ independence. Regulators believe that conflicts of interest occur and fee dependence has a damaging affect on auditor independence. Audit firms often defend themselves by saying that fee dependence does not influence them and audit and non audit services are performed independently by separate staff (Houghton & Ikin, 2001). It is also opined that non auditing services help in reduction of total costs, improve technical competence and intensify competition. ...
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