AUDITOR INDEPENDENCE

Auditor Independence

Auditor Independence

Introduction

For many businesses auditing is a useful tool that has been implemented within their business operation to assist decision makings undertaken by the stakeholders. Auditing has also become a compulsory regulatory compliance that needs to be satisfied by public companies listed in the capital market, in which it is imposed for the purpose of protecting investors in a way as to mitigate against the risk of fraudulent activities concealed by the managements of the firm.

Why it is considered important for an auditor to remain independent in body and mind when conducting an audit for a public limited company?

The function of the external auditor in the supervisory method needs measures for example independence,objectivity and integrity to be achieved. Even though the controller and external auditor present alike purposes, namely the verification of economic declarations, they assist specific interests. The controller works in the direction of safeguarding economic steadiness and shareholder interests. On the other hand, the external auditor assists the personal concerns of the shareholders of a company. The economic review continues an significant facet of business governance that makes administration accountable to shareholders for its stewardship of a company. The external auditor may although, have a financial concern too. The argument surrounding the function of external auditors focusses in specific on auditor independence. A review by the publication “Financial Director” displays that the charges drawn from from review purchasers in periods of non-audit services are important in evaluation with charges developed through auditing. Accounting companies occasionally enlist in a perform called “low balling” whereby they set review charges at less than the market rate and make up for the shortfall by supplying non review services. As a outcome, some review companies have financial concerns to defend too. There is anxiety that the auditor's concerns to defend shareholders of a business and his financial concerns manage not confrontation with each other. Sufficient assesses require to be in location to double-check that the external auditor's self-reliance is not affected. Brussels suggested a new directive for auditors to trial to avert farther scandals for example those of Enron and Parmalat. The new directive states that all companies recorded on the supply market should have unaligned review managing assemblies which will suggest an auditor for shareholder approval. It furthermore states that auditors or review partners should be rotated but does not mention the parting of auditors from consultancy work regardless of disputes that there is a connection to compromising the self-reliance of auditors. However this may be because Brussels furthermore portions the outlook that there is no clues affirming association between grades of non-audit charges and review flops and that as a outcome, adequate safeguards are in place.

Following the collapse of Enron, the UK government set up a high level group of regulators and ministers to co-ordinate a review of the UK regulatory framework, including the key area of auditor independence. The Accountancy Foundation Review Board (Review Board), which was at the time responsible for the independent oversight of the UK ...