Question

Why do you think independence is important in the audit profession? Please reference a specific case from the text or a real world experience in your discussion. lease post a create a thread and post your response using 150 words are more. (Adopted from Discussion Question in Chapter 4 of Ethical Obligations and Decision-Making in Accounting, 5th Edition)

Answer 1

What is Independence-

Auditor independence refers to the independence of the internal auditor or of the external auditor from parties that may have a financial interest in the business being audited. Independence requires integrity and an objective approach to the audit process

Why is it so Important in Audit Profession-

The auditor should be independent from the client company, so that the audit opinion will not be influenced by any relationship between them. The auditor are expected to give an unbiased and honest professional opinion on the financial statements to the shareholders.

The primary purpose of an audit is to provide company shareholders with an expert, independent opinion as to whether the annual accounts of the company reflect a true and fair view of the financial position of the company and whether they can be relied on. Independence is the main means by which an auditor demonstrates that he can perform his task in an objective manner.

A high profile example would be the relationship between Enron and their auditors, Arthur Andersen. In 2000, Andersen received $27m for non-audit services, compared with $25m for audit services, meaning Enron accounted for over 25% of the fees generated by the firm’s Houston office. In the aftermath of Enron’s demise, the accounting firm was accused of not acting independently and suggestions were made that they had gone along with the accounting practices in Enron in order to retain their work.