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Fill as applicable to you, EITHER AS AN INDIVIDUAL PROFESSIONAL OR A REGISTERED
FIRM. We conclude that the mixed evidence, together with recent regulatory changes, provides
opportunities for future research on auditor independence and audit quality. The growing more beans
here connotes our effective contribution to national growth and development as professionals in the
financial sector and not just as the public often times perceive us as counting money and ticking the
books. When a material loss is probable and financial statement cannot be adjusted, what will you
do. Auditors should not engage in audit work with an entity that provides the office or audit firm
with unduly large proportion of gross practice income such as 15 percent. The Cadbury Nigeria Plc
misstatement case, which overstated its earnings in its books of account and sanctioned by the
Security and Exchange Commission, is well known. The vast majority of publicly owned companies
in the United Kingdom have at least one chartered accountant on the board, often as CFO, but also
as chairman, CEO, or independent non-executive director. In this case, the auditor should not be a
promoter of the shares or securities of the client and should not act in litigation or solving of disputes
with third parties. Likewise, audit quality and credibility significantly influence on reputation that is
also related to sustainable success. For example, an explanatory paragraph is included when
uncertainties or substantial doubt exists about the entity’s ability to remain a going concern and
when accounting principles are not consistently applied. Hermes.co.uk also cites stakeholders’
concern about auditor independence because non-audit fees are higher than audit fees. This was an
attempt to solidify their relationships with the corporation’s management therefore maintaining them
as clients. Other times the consulting professionals will have little or no interaction with auditors
especially in large firms. If firms miss their earnings expectations even by a slim margin the result is
an immediate decrease in stock prices. Studies on auditors' independence and its effect of actual
audit quality and users expectation gap are useful to inform regulatory bodies and the accounting
profession in devising ways to enhance auditors' independence and the role in corporate governance.
Beams (2002) contends that it was due to rogue trading, deliberate concealment of debts and other
financial irregularities done by Enron in connivance with auditor Arthur Andersen LLP. Based on the
review, findings show that there is a strong relationship between auditor independence and audit
quality. In as far as auditing is concerned, it is imperative for the auditors to have some form of
independence so that they can impartially dispense their duties. There exist various threats to an
auditor's independence namely self-review threats, self-interest threats, familiarity threats, advocacy
threats, and intimidation threats. Certain Financial Relationships-Audit committees should be aware
that certain financial relationships between the company and the independent auditor are prohibited.
Auditors perform in-depth reviews of corporate controls and mechanisms ensuring that the
departmental heads keep a close eye on operating risks in their business units. Several major
instances of misstated earnings prompted the SEC in 2000 to adopt rules prohibiting non-audit
services inconsistent with auditor independence. However, some studies indicated a positive
relationship while others showed contrary due to the type of study. The auditor should not take any
loan, guarantee of a loan from the client, or engage in undue dependence on the total fees paid by
the client. If non-fees are substantial in retaliation to audit fees, suspicions may arise that auditing
standards may be compromised. Digital Sales Sell your publications commission-free as single issues
or ongoing subscriptions. Also in June 25th 2002, the global telecom giant WorldCom that admitted
3.8 billion dollars in cost, incorrectly counted as capital expenditure went down as well. Flood, J.
2012. Wiley practitioner’s guide to GAAS 2013: covering all SASs, SSAEs, SSARSs, and
interpretations. GIFs Highlight your latest work via email or social media with custom GIFs. In the
Companies Act 2006, Section 507 prevents auditors knowingly or recklessly causing an. In order to
maintain independence, the auditors are required by law o maintain integrity, competence,
objectivity, performance and courtesy.
In this regard Delu (2007) who studied audit expectation gap in Ethiopia found that there was
agreement between auditors and users of financial statements that the auditor must act
independently; however, both also expressed their doubts on the practical applicability of
independence. Auditor independence is important, of course, but it is not all-important. The results
indicate a positive and significant correlation between audit quality and audit efficiency, the
reputation of auditing office, auditing fees, the size of audit firm, and the proficiency of auditor.
Independence is generally understood to refer to a mental state of objectivity and lack of bias.
Auditor Independence was achieved by SOX because since its inception accounting firms that
perform audits cannot have other accounting contracts with the audited firm. Embed Host your
publication on your website or blog with just a few clicks. The paper also discusses the required
limitations of auditor independence. The corporate governance mechanism of the client must have
audit committee that provides communication and oversight on the work of the audit firm in order to
safeguard auditor’s independence. The study deployed the quantitative method of research through
the use of questionnaire to collect data from a sample of 70 respondents across the tertiary
institutions in the Northern Region of Ghana. This article seeks to underscore the pivotal importance
of auditing and the function of audit impartiality in guaranteeing the dependability and credibility of
financial information utilized in credit and investment resolutions. Video Say more by seamlessly
including video within your publication. Statistics Make data-driven decisions to drive reader
engagement, subscriptions, and campaigns. D’ Souza, D (2004).Advanced Auditing 2nd Edition,
Taxmann Allied Services Ltd., New Delhi 3 Financial Reporting Council of Nigeria Act of 2011 4.
The professional code of conduct at international and local levels as well as the commercial codes
that govern the business and economic endeavors stated that professional accountants must be
competent and independent to undertake an audit and assurance services. In the UK, while many
regulations have been put in place to ensure and promote auditor independence, there is much more
that can be done by the government as well as by audit clients. Others principles are Competence,
Confidentiality, Integrity, Objectivity. 2) In Nigeria, auditor’s Independence, Conflict of Interest and
other required ethical conducts are clearly stated in the newly enactedFinancial Reporting Council
(FRC) Acts of 2011 under Section 26. Auditor's independence is a critical issue that is broadly
discussed in the business world, especially after the world-known scandal of Enron. Teams Enable
groups of users to work together to streamline your digital publishing. Nevertheless, know that the
era of maintaining status quo is gone. This literature review is conducted based on published articles
during the period 1976-2013 in nine leading journals related to auditing. Draft a udit quality
framework A work in progress Environments conducive to audit quality Public consultation in 2012
Ethics coverage in the framework. Practical experience and professional up to date experiences got
through continuous development programmes. The audit committee should be free from
unreasonable restrictions and should regulate the circumstances that the auditor can be engaged in
non-audit functions. The second set, directs the Financial Services Authority to assist the Financial
Reporting Review Panel on enforcement issues, and requires the existing range of FRC functions
should be expanded to include the functions of the Accountancy Foundation. Ene Corruption is the
greatest enemy of the Nigerian state evidenced by the recent rating of the nation as most corrupt
country in the world. Hermes.co.uk recommends formation of audit committees with powers to
focus on non-audit contracts including the authority to veto any suspect contract. Oxera.com (2006)
adds that such committees should prominently participate in auditor selection. Hermes.co.uk next
recommends that executive directors do not function as audit committee members, and that audit
clients adopt accounting reports that show non-audit fees in full detail, totally different from audit
fees. In the 1930s, noted economists Adolf Bearle and Gardiner Means articulated this change by
advancing the proposition that large corporations were based on the separation of ownership from
management and that an important role for accounting and auditing was to properly value the
proprietary interest of the corporation. Identify the auditor firm and the audit partner for each of the
five years. Section 404 requires disclosure of details of individual controls framework and system of
financial reporting, also duly confirmed by auditors. Unlike studies in developed countries, few of
the previous studies in developing countries were not motivated by notable failure of companies and
audit firm scandals, but they indicated that there is a frequent appeal of major financial statement
users such as taxing authorities and banks that are in a difficult situation of accepting audited
financial reports as a credible and dependable for financial and economic decisions.
It is in situations liked this, that auditors independence is most likely to be compromised. The
underdevelopment in the audit infrastructure was also mentioned by police makers at Ministry of
trade and Industry among the possible challenges speeding up investment and economic
development in Ethiopia (MOI, 2005). Intrinsic ethical concentration and extrinsic stimulus are
hypothesized to become the antecedents of audit independence by using professional oversight as a
moderator. In addition, this research adds further evidence to the value of studying auditing
efficiency, the reputation of audit firm, auditing fees, the size of auditing office, and the proficiency
of auditor on the quality of auditing. It is truly and absolutely a key factor that the audit committee
identifies independence violations, because they are on the front line and are closest to the action.
Two months later, an additional N200 billion was injected to stimulate the liquidity of four other
banks (Bank PHB, Equatorial Trust Bank, Spring Bank and Wema Bank). Some set up audit
committees or monitoring groups to monitor a wide range of developments in financial reporting
which include any likely issue or action that can cause impairments on auditor’s independence. GIFs
Highlight your latest work via email or social media with custom GIFs. Fullscreen Sharing Deliver a
distraction-free reading experience with a simple link. This was an attempt to solidify their
relationships with the corporation’s management therefore maintaining them as clients. They should
have the authority to appoint and change the auditor. Embed Host your publication on your website
or blog with just a few clicks. Influences on the independence of auditor both internal and external to
the firm may impair auditors' independence. ACA Winter Conference January 29 th, 2013 Houston,
Texas. Although internal auditors aren't freelance from the entity, The IIA standards outline internal
audit as. Independence continues to be a problem when it comes to finding out how accurate and
credible investor finan. We use cookies to create the best experience for you. Hermes.co.uk
recommends that the Government makes it mandatory for auditor rotation after say 5 years, by
floating tenders. Oxera.com (2006) agrees, because a study revealed that over 70% of FTSE 100
organisations did not hold a competitive tender since 15 years. It is important to understand the
factors that auditors perceive as affecting audit quality since these are the factors that affect actual
audit quality. Add Links Send readers directly to specific items or pages with shopping and web
links. An auditor must be watchful to any harmful impacts on his planning, investigation, or
reporting to preserve independence under the numerous pressures from clients. Intimidation threats
such as coercion the owners of the firm will hinder the independence of the auditor. However,
overall, despite the strong criticism in the United Kingdom of the extraterritorial aspects of the
Sarbanes-Oxley Act, the major provisions of the act are widely seen here as being the right and
proper measures. Wyman (2004) adds that the ICAEW works to make certain that not only the
topmost-caliber persons are enrolled into accounting jobs, but also that they get the best possible
training to turn them into excellent auditors. An auditor's opinion must be based on an objective
assessment, he says. Jack, the Auditor. Mother-in-Law. He snoops around in other peoples books.
Based on the review, findings show that there is a strong relationship between auditor independence
and audit quality. QR Codes Generate QR Codes for your digital content. In this case, the auditor
should not engage in the above services, but can ask for clarifications on accounting principles used
in preparing financial statements and propose the adjustment of journal entries since this forms part
of the normal audit work (Brenkert, 2004). The auditor is expected to monitor the integrity of the
financial statements, review the internal financial controls, review the effectiveness of the internal
audit department, and provide non-audit services while considering the ethical guidelines concerning
the auditor’s work.
Disclosures. Received Research and Travel Support from the Terumo Corporation and Cellplex Pty
Ltd. Recently, there was a series of events which has raised questions regarding the independence
involved in the present practices related to accounting. Survey research design was employed in
carrying out the study. The growing more beans here connotes our effective contribution to national
growth and development as professionals in the financial sector and not just as the public often times
perceive us as counting money and ticking the books. Other legal issues that affected businesses prior
to the SOX Act are auditor conflicts of interest,boardroom failures and inadequate funding from the
Securities Exchange Commission. The purpose of this exploratory study is to review existing
empirical studies on auditors independence to developed a theoretical framework that facilitate
further studies in least underdeveloped audit market. In evaluating the culpability of external
auditors, this study investigates the external auditors’ independence as a factor in combating
corruption in Nigeria public service. I strongly believe that ANAN will turn the paper statement into
concrete measurable results in no time. 15) Conclusion Auditor independence as we have seen no
doubt helps to ensure quality audits. Furthermore, it is thus just as important to understand why
some audits do not fail, and for the most part, few audits fail due to the fact that detailed procedures
were not followed properly or, just as well, due to a lack of independence, for example. Analysis was
carried out using descriptive statistics, while the 5 hypotheses formulated were tested for
significance using the chi-square test. The concept of auditor independence shifted in favor of
objectivity and neutrality in the reporting of the financial position and the results of operations,
rather than loyalty to a particular party. Both theoretical and managerial contributions are explicitly
provided. Report this Document Download now Save Save Auditor Independence For Later 0
ratings 0% found this document useful (0 votes) 319 views 26 pages Auditor Independence
Uploaded by Nyasha-dzashe Marshall WekwaMagunda AI-enhanced description Independence is
fundamental to the reliability of auditors' reports, says julian zelizer. This has been repeatedly
mentioned as the underpinning rational for examining the effectiveness of auditors' independence
from different perspectives. Adobe InDesign Design pixel-perfect content like flyers, magazines and
more with Adobe InDesign. You can download the paper by clicking the button above. Audit firms
may not have any direct or material indirect business relationships with the company, its officers,
directors or significant shareholders. They are totally opposed against the new ruling and voiced
many of the same concerns that were seen from other CPA's. Other times the consulting professionals
will have little or no interaction with auditors especially in large firms. If firms miss their earnings
expectations even by a slim margin the result is an immediate decrease in stock prices. Like Robert
Goizueto (1931-1997) said, “The vision of an accountant, the secret isn’t counting the beans; it is
growing more beans. The financial statement is the responsibility of the management. Barbie - Brand
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Company (fr. Basically, “audit independence is defined as an objective and trustworthy arbiter of the
fair presentation of financial results,” (Falk et al. Auditor independence is important, of course, but it
is not all-important. The auditor should not have any close business relationship with the auditor in
order to avoid instances of persuading the client to offer employment position to the auditor (Bode,
2008). Without definite independence, audits have little value. It is important to understand the
factors that auditors perceive as affecting audit quality since these are the factors that affect actual
audit quality. The paper concludes that incessant endeavors to reinforce audi. Help Center Here
you'll find an answer to your question.