Submitted by: Submitted by Achal
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Pages: 8
Category: Other Topics
Date Submitted: 10/02/2012 03:33 AM
ISSUES RELATED TO AUDITOR INDEPENDENCE
Auditor independence has contributed towards the increased capital market efficiency by ensuring quality audits and through contributing towards the reliance on financial reporting process by the users of financial statement users. Thus auditor independence is referred to as the cornerstone of auditing profession, since it is the base for public’s trust. Auditor independence has been understood in terms of independence “of mind” and independence “in appearance”. “Independence of mind relates to the state of mind that permits the expression of a conclusion without being affected by influences that compromise professional judgement”(text bk). It requires auditors to act with integrity and objectivity. Independence in appearance states that even though the auditor is independent in fact, there are factors that lead the public to perceive that the auditor does not appear to be independent. This will eventually lead the investors and users of financial reports to doubt on the reliability of the financial information.
Moreover, the corporate collapse due to misstated earnings in the early 2000’s has led many to question the effectiveness of auditor independence that is it had a very negative impact on the perception of auditor independence. There are auditor independence issues that led to corporate collapses, which eventually resulted in Global Financial Crisis.
One of the major issues in relation to the auditor independence is providing non audit services to the audit clients. The provision of non-audit services to the audit clients is viewed as the conflict of interest by the regulators and the critics of the accounting profession. According to researchers such as Simunic, Swanger and Chewning, the provision of consulting services creates threats to auditor independence as an economic bond is created between the audit firm and the audit client, which the auditor may not want to lose.
For instance, in the case of...