In order to successfully carryout this feat, it can be seen that independent auditors play a significant role in the functioning of global capital markets. As such, this paper has been designed to evaluate the main reasons why auditors must be independent and objective in their operations. The main part of the paper will focus on why focus in terms of auditing financial statements of different companies is put on aspects such as objectivity as well as independence of the auditors who carry out different tasks related to financial reporting in the company. According to Kueppers & Sullivan (2010), the audit profession plays a very significant role in the functioning of the global capital markets and it also adds value to various roles played by different stakeholders in financial reporting in an organization. However, the effectiveness of an audit is reflected by the absence of failure of business or fraud after it has been completed. This can be achieved if an independent auditor is hired to perform such a task in the organization. Ussahawanitchakit (2012, p.1) posits to the effect that during the recent years, “auditors have become important professions for directly and indirectly promoting the growth of economics in the countries.” These professionals significantly help the stakeholders and other people to assess the value of the firm’s financial information in all aspects of business. This can be achieved through the implementation of accounting and auditing standards that are within the dictates of the financial rules and regulations in a given country (Intakhan and Ussahawanitchakit, 2010). In most cases, independent auditors are more appropriate in carrying out this particular task. In as far as auditing is concerned, it is imperative for the auditors to have some form of independence so that they can impartially dispense their duties. Basically, “audit independence is defined as an objective and trustworthy arbiter of the fair presentation of financial results,” (Falk et al., 1999 as cited in Ussahawanitchakit (2012, p.12). This is a critical factor in the audit profession given that it is comprised of objectivity and is often free from bias. Audit independence is very important in the preparation of financial statements since it helps to generate investor confidence if the financial statement has been carried out by an outsider or independent person. Beattie et al (1999), suggest that in general, audit independence includes independence in fact, which is an unbiased mental attitude of an auditor, and independence in appearance, which is the perception by a reasonable observer that an auditor has no relationship with an audit client which would suggest a conflict of interest audit independence can be achieved if there are no conflicts of interests among the parties involved. It can also be noted that independent auditors are mainly concerned with upholding the principles of ethics, fairness and other practices and operations for presenting audit quality which plays a role in improving the quality of auditing that would done. Independent audits are also important since they help to promote fairness in the creation of financial statements and are likely to go a long way in sustaining integrity in terms of financial reporting. Georgiade (2011), states that the responsibilities of the independent auditor when conducting an audit of financial statements in accordance with GAAS include the following: “Obtain reasonable assurance about whether the financial sta
Issues such as fraud, misappropriation of company funds and misrepresentation of organizational financial statements are common in different types of the media across the globe…
The internal audit function seeks determine to express an opinion on whether an entity’s financial statements show a true and fair view of the companies operations. Inclusive in showing a fair view is the need to ensure that it has been prepared in accordance with accepted accounting standards.
Week I Individual Assignment It is imperative for companies to have clean accounting records due to the fact that stakeholders expect financial statements that are free of fraud and material error. At first glance it is apparent that your organization has an accounting system that is out of control.
In this essay I will discuss about how auditor scepticism is an increasing concern for the profession and stakeholders of UK Companies. As the society is becoming more complex, decision makers are increasingly provided with unreliable information (Edmund, 2005).
Specifically, the responsibilities of an auditor involve the full participation of the professional to identify the indication of inefficiency and ineptness in the financial statement of an organisation and confront receptive issues related to the inefficiency.
The FEE Paper Comparison International Ethics Standards Board for Accountants (IESBA) Code of Ethics that says “An individual’s objectivity must be beyond question when conducting and reporting on a statutory Audit.” This is applicable when auditors themselves act as statutory auditor, or when they are auditing on behalf of an auditing firm.
In this context, the Sarbanes-Oxley act was implemented in the US that aimed at bringing back public faith in financial reports. The Sarbanes-Oxley Act made it mandatory for the auditor to be replaced after every five years in the US. The European Commission, however, did not mandate a compulsory auditor rotation, and recommended in its proposal implementation of audit firm rotation and change of audit firms every six to nine years (European Commission, 2010).2 Globally, mixed approaches have been adopted as regard MAR, and in many countries such as the UK, audit partner rotation is given preference over firm rotation, while the regulators in Germany, the US and the UK have derived that pote
Auditors must be independent in performing an audit. Independence means that the auditor can freely issue a qualified opinion, adverse opinion, disclaimer opinion without being influenced by many factors. The auditor's auditing standard no. 2 states that independence in mental attitude at all times is required.
It can be clearly seen that if audit is to be carried out in free and objective manner the auditors must be independent in fact (actual independence) and if their opinions are to be accepted auditors must also appear to be independent.
Corporate world has time and again been rocked by scandals and sudden failures, of these, Enron & World Tel are considered water shed cases due to the sheer size of their failure.