Question

Assignment about 2000 words on factors influencing auditor independent

1.0: Background of Study

2.0 Review of variables:

2.1- Audit Fee

2.2- Audit Firm Size

2.3 Audit Tenure

2.4 Audit Committee

3.0 Conclusion

4.0 Recommendation

Answer 1

Company’s financial statements are to be examined by independent and objective professional to provide reasonable assurance that the financial statements are free from material misstatements.The purpose is to determine the effect of auditor’s independence,audit tenure,audit fee on audit quality. Users believe that the audited financial statements are credible to serve as basis for decision making.

2)Review of variables:

2.1 Audit fee is the amount charged by the auditor to the auditee company for the audit services rendered by the auditor on the financial statements.Audit fee has a significant effect on audit quality. Higher the audit fee,higher the audit quality is.

2.2 Large audit firms are less exposed to loss of auditor’s independence than smaller firms because they are less dependent on clients. The audit fee received from customers comprises only a small percentage of total revenues of bigger firms. Smaller firms have the tendency to supply more personalised services due to their limited clients which lead to close relationships and less independent audits.

2.3 The time period of the auditor conducting the examination of audit of financial statements is known as audit tenure. Audit tenure does not have significant influence on audit quality. Audit tenure can provide auditor a better understanding of hus clients , thus increasing audit quality.

2.4 Existence of audit committee is accompanied by a positive influence on auditor’s independence and audit quality. It improves the auditor’s independence. Power of clients management over the auditor is reduced when company has audit committee.The auditor’s independence problem may be reduced if audit committee undertakes roles of accepting and reviewing the audit fee which is initially executed by client management.

2.5 conclusion: Auditors thus have high degree independence in performing the audit by programming, working and reporting. Therefore auditor independence has positive and significant influence on audit quality. Audit tenure does not significantly effect audit quality. Aimed to understand better and more efficient in providing audit services not to effect auditors independence.

Recommendations: For improving audit quality, we recommend that the institute should set up an independent review board, who is responsible for conducting practice reviews for auditors of companies.