Question

The independency of the auditor has been seriously questioned in a number of investigations in recent years. Discuss relevant legislations, professional pronouncement and contemporary development which appear to go some way to give the auditor the independence required.

Answer 1

The Importance Of Auditor Independence from the client company, so that the audit opinion will not be influenced by any relation-ship between them. The auditors are expected to give an unbiased and honest professional opinion on the financial statements to the shareholders.

Regulatory / Profession pronouncement / Contempary developments:

• In April 2014 the European Union Audit Regulation and revised Audit Directive were published. These apply from 17 June 2016 and impose additional independence requirements, over and above those in the previous APB Ethical standards and ICAEW’s part 4A.

• Apply part 4A of the Code based on the International Ethics Standards Board for Accountants’ (‘IESBA’) Code of Ethics. It applies ICAEW’s preferred ethics regulatory ‘framework’ approach of fundamental principles which must always apply, an analysis of threats to compliance, application of effective safeguards (or withdrawal from the engagement), together with absolute requirements and prohibitions only where no acceptable safeguard could reasonably be applied.

• The Sarbanes-Oxley Act of 2002 mandates that audit committees be directly responsible for the oversight of the engagement of the company's independent auditor, and the Securities and Exchange Commission (the Commission) rules are designed to ensure that auditors are independent of their audit clients.

• following legislation and standards:

1. Divisions 3, 4 and 5 of Part 2M.4 and s307C of the Corporations Act

2. APES 110 Code of Ethics for Professional Accountants

3. Auditing standard ASQC 1 Quality Control for Firms that Perform Audits and Reviews of Financial Reports and Other Financial Information, and Other Assurance Engagements; and

4. Auditing Standard ASA 220 Quality Control for an Audit of a Financial Report and Other Historical Financial Information.

• Auditing Standard ASA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Australian Auditing Standards

• conceptual framework in APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) to independence for audits, reviews and other assurance engagements as set out in Parts 4A and 4B of the Code

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