Independence of auditing - Essay Example

Summary

An independent auditor is defined as “a Certified Public Accountant who provides a company with an accountant’s opinion, but who is not otherwise affiliated with the company” (Investorwords.com). Public interest in, and discussion about, the specific functions of auditors…

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Subject: Miscellaneous
Type: Essay
Level: Undergraduate
Pages: 4 (1000 words)
Downloads: 3
Author: qschumm

Extract of sample "Independence of auditing"

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The accuracy and reliability factor basically governs the shareholders’ relationship with the company, because such published account reports are the only indication about the company’s financial position (especially the soundness and proper functioning of its current investments), and as such, represents the basis on which the shareholders decide about investment in the company. Shareholders, therefore, need to be assured about the accuracy and reliability of the company’s published accounts.

This is the reason why it is mandatory for companies to have their accounts checked by an independent auditor. High profile cases like the Enron debacle tend to not only lower the esteem of the auditing profession as a whole, but also to erode confidence of shareholders, making them doubt the authenticity of the reports published (Hermes.co.uk). The global auditing world is ruled by 5 auditing firms (called the Big Five) that have the capability to audit the largest public companies in the world.

They are PriceWaterhouseCoopers (PwC), Klynveld, Peat, Marwick, Goerdeler (KPMG), Ernst & Young (E&Y), Deloitte & Touche (D&T), and Arthur Andersen (AA) {Europa.eu, 2002}. The Big Five attained their structure and position as a result of several mergers with other auditing firms (the last major merger involved Price Waterhouse and Coopers & Lybrand, who formed PriceWaterhouseCoopers, thereby trimming the Big Six to Big Five {Europa.eu, 2002}). After the Enron scandal in 2001, AA was struck off the Big Five list with the result that there are now the Big Four audit firms.

Within the U.K, PwC is the largest audit firm, although by a worldwide comparison, the Big Four are almost evenly matched (Oxera.com, 2006). Public concern about the independent status of auditors stems from the trend of audit firms to diversify to other non-audit services

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