Kaydolmak ve işlere teklif vermek ücretsizdir. The monetary impact if presented is more appreciable by the stakeholderseval(ez_write_tag([[336,280],'wikiaccounting_com-medrectangle-4','ezslot_0',104,'0','0'])); The regulatory body has made auditors only a qualified person to carry out the assignment of audit and report on the true and fair view of the client entity’s financial statements so that users’ financial statements could rely on financial statements. Fall 2013 Section 04 September 17, 2013 – Case #1: The importance of being independent (by Deloitte) Discussion Questions One of the key roles of the external auditor is to protect the interest of the public. Submitted. Pinterest. In the audit of the financial statements, the opinion of an independent external auditor has always been extremely important in the audit of money laundering prevention due to the independence that the auditor should have in relation to the company in question. Therefore, organizations try to outsource their audit process to reputed teams of auditors who have a reputation for creating a positive outlook when it comes to different steps. Intimidation threat occurs due to actual or perceived threats from clients or other stakeholders. Twitter. The main reason for the audit is to provide opinion on financial statements by the auditor which is beneficial to stakeholders involved and take decisions based on these financial statements. Since an external auditor has no reason to be anything but honest about the status of your financial compliance, you can rely on the independence of the investigation and on the recommendations being made. It is aimed at for-profit organizations, but public confidence in financial statements is important in all sectors. An external audit can also pinpoint where your compliance efforts may be lacking. •To understand the difference between practitioner and profession independence. The auditor’s opinion enhances the credibility of the financial statements. It is critical for an auditor to be independent of the firms they audit due to many reasons. Auditors contribute in Both internal as well as independent audit system in different but important ways. An independent auditor is a certified public accountant (CPA) or chartered accountant (CA) who examines the financial records and business transactions of a company with which he is not affiliated. It is important to note that independence of the auditor enables the users of the financial statements to trust the validity of the results of the financial audit. Familiarity threats occur when auditor develops a cordial relationship with the client. Back to … Their findings and audit processes give businesses the confidence and reassurance that their information and the way they conduct business is suitably kosher. Your input on these issues is extremely important to the Board. In other words, are the statements reasonably accurate. Auditor independence tends to be an extremely important component across the audit process, because of the reason that it directly influences the judgment that is put forth by the auditor. The auditor should be independent from the client company, so that the audit opinion will not be influenced by any relationship between them. A 20-page booklet called Guidance for Audit Committees: Discussing Auditor Independence Matters is available for free download from the CICA. • Assurance provided by Auditors is a key quality control on the reliability of information. Objective of audit is to pursue and attain its various corporate objectives. In addition to technical competence, auditor independence is the most important factor in establishing the credibility of the audit opinion. In conclusion, auditor independence remains an important element when individuals are conducting an audit. (Definition, Explanation, Journal Entry, and Example). But sometimes the client may influence the auditor, which results in the issuance of the incorrect report by the auditor. The importance of independent audits. email. This also includes obtaining reliable financial reporting on its operations, prevention of fraud and misappropriation of its assets, and minimizing its cost of capital. As a matter of fact, the audit process is supposed to be taken seriously by the organizations because of the high level of dependence it holds for other relevant stakeholders that are involved in the accounting process. 1213 Words 5 Pages. They do not have existing relationships with any other employees, do not have a feel for how things have always been done and do not have an interest in protecting Joe in accounting or Suzy in management. Why is the independence of an auditor important? If it is the duty of an auditor to express his independent opinion on the financial statement furnished to him, the data produced by the accounting system alone (e.g., journals, ledger, manuals, worksheets) are not sufficient to base his opinion. In US GAAS, AU-C 200, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance With Generally Accepted Auditing Standards, officially defines professional skepticism as an attitude that includes a questioning mind, being alert to conditions that may indicate possible misstatement due to fraud or error, and a critical assessment of audit evidence. Importance of audit independence: Auditors need to be unbiased due to the nature of the work it imparts. Therefore, independent auditors examine the financial records of a company that he/she is not affiliated with. Independent auditors serve their clients in numerous ways one of which is to render an opinion on whether or not the financial statements prepared by a client are fairly stated. It is important to note that independence of the auditor enables the users of the financial statements to trust the validity of the results of the financial audit. The Importance Of Audit Independence. Types of Audits: 14 Types of Audits and Level of Assurance. Independence became an issue after corporate scandals such as Enron. In this regard, it is also important for them to realize how crucial it is for the auditor to be independent and execute the process in an effective manner. Firms face the risk of damaging their reputation once auditors fail to report mistakes in their audits. Watch Queue Queue. Self-interest threats occur when the financial interest of the auditor and his relatives are involved. Importance of Audit Independence for Shareholders Shareholders are the direct beneficiary of companies and they will get more bonuses if the companies operate successfully. When they do not comply with legal rules and regulations, it could lead to fines, jail time, and the penultimate the collapse or downfall of the audit firm as it is happening with Pricewaterhouse Coopers in India after Satyam Fiasco. This mainly requires the auditor to have the liberty to execute his work in a free and objective manner. Independent auditors serve their clients in numerous ways one of which is to render an opinion on whether or not the financial statements prepared by a client are fairly stated. Facebook. The auditors are expected to give an unbiased and honest professional opinion on the financial statements to the shareholders. The most important conclusion of the case study was that in all cases, the reasons that led to express modified opinions, was detailed in the auditor’s report, this being considered as a reference guide for the future auditor’s missions, as well as, a recommendation for improving the highlighted aspects. What is a prepayment? As the development of the modern business, audit is playing a more and more important role to insure the trueness of the financial report and help report users to make proper decisions. The following are points which describes why the auditor’s independence is very important: The external auditor is bound by legal obligations to be independent. The auditor … (2) Credibility of financial information • An unqualified report by independent external auditors on the account should give credibility and enhance the appeal of the company to investors. In this perspective, it is not important to ask what an honest and honest auditor is. (Definition, Explanation, Journal Entry, and Example). Doubts are sometimes expressed regarding the independence of external auditors. Hence, in the cases where the auditor is unable to adopt an independent approach towards the audit process, the opinion issued might not be valid, and cannot be relied upon. L'inscription et … It forms to be a very useful and concrete decision-making criterion by these stakeholders since it gives them confidence that the financial statements and other relevant information has been checked upon by the auditor. In this regard, it enables him to muster the courage to question the company, and the officials, in case something is missing in the financial statements, or something should be added on. Credibility. Audit independence is important so that auditor’s opinion can be impartial, unbiased, free from any undue influence or conflict of interest to override the professional judgement of the professional accounting (Rutgers Accounting Web, 2015). 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