Question

Why is an auditor’s independence so essential? How does the Chartered Professional Accountant’s need for independence differ from that of other professions? Provide two examples from current events where independence was an issue in an audit of a public company.

Answer 1

Auditor's Independence is essential because the audited financial statements are trusted documents and are being relied upon by various stakeholders such as investors, regulators, employees and other parties. Auditor vouches for the true and fair view of the financial statements prepared by the management.

If an auditor is not independent of the organization and its management, it might get influenced by them and give a biased opinion which might lead to a loss for any of the stakeholder. He might also not report any material aspect of the financial statement which might be crucial for decisions made by stakeholders. Therefore, it is very essential for an auditor to maintain its Independence.

How CPAs need differ:

The CPAs need for independence differs from that of other professionals is because the statement given by them are relied upon by various parties. They audit the financial statements which mean an examination of the financial statements and the users rely on the report of CPA as the same has been examined by a competent professional i.e. CPA. In the case of other professionals, the user of their reports are the client itself, therefore, Independence is not much important of a factor.

Two major examples:

SEC Press Release Number 2016-187 - on Sept 19, 2016 - SEC charged EY with Auditor Independence failure under two cases.

SEC Press Release Number 2015-137 - on July 1, 2016 - SEC charged Deloitte with Auditor Independence failure under three case of various funds.