Audit Quality vs Audit Independence

Word count: 1471

What distinguishes auditing from consulting is the independence requirement in auditing, defined as “the absence of economic interest in the auditee” (Jeppesen 1998). However, he also concluded in this article that “auditors cannot be independent because audit is no longer independent”. This essay will explain and critically discuss the conception of audit independence in conjunction with audit quality by first defining audit independence, followed by definition of audit quality, leading to a discussion of the relationship between audit quality and audit independence. It is argued that however important the concept is, audit independence has potential threats and it is positively correlated with audit quality, based mostly on Jeppesen 1998.

Audit independence is commonly referred to as the cornerstone of audit profession; however it is difficult to define as “independence” is a qualitative and subjective term. AICPA 1997 defined it as an absence of interests that create an unacceptable risk of bias with respect to the quality or context of information that is the subject of audit management. Carmichael & Swieringa 1968 referred to independence as the absence of self interest, leaving the auditors to form objective, unbiased judgements. Jeppesen 1998 provided the most comprehensive concept of audit independence, in which he categorised audit independence into “organisational independence” and “operational independence”. Organisational independence is the independence of the individual auditor and the profession. It consists of programming, investigative and reporting independence. Elliot & Jacobson argued that operational independence is not really important as long as the auditor is objective; therefore the auditor may have interests in the auditee and still be objective, provided his integrity is high. In reality, such objectivity is difficult to maintain given the close relationship between the auditor and auditee, because the...