Question

Erica Gray, CPA, is a sole practitioner. She has been practicing as an auditor for 10 years. Recently a long-standing audit client asked Gray to design and implement an integrated computer-based accounting information system. The fees associated with this additional engagement with the client are very attractive. However, Gray wonders if she can remain objective on subsequent audits in her evaluation of the client’s accounting system and its records if she was responsible for its design and implementation. Gray knows that professional auditing standards require her to remain independent in fact and appearance from her auditing clients.

Required

What do you believe auditing standards are mainly concerned with when they require independence in fact? In appearance?

Why is it important that auditors remain independent of their clients?

Do you think Gray can accept this engagement and remain independent? Justify your response.

Answer 1

An Auditor is always required to remain independent while auditing any client financial statements and that Independence is an ethical responsibilty of an auditor and it should be maintained throughout the audit and also Independence is required both IN fact and also IN Appearence as one cannot appear to be dependent in fact but actually not appear to be independent while conducting audit and Vice-versa.

It is important to maintain Independence because:

• It is the ethical duty of an Auditor to follow ethical code of conduct of the profession.
• While being an Independent person, an auditor can perform a completely Un-biased audit function on basis lot of external stakeholders can rely upon totake their important investment decisions.
• An independent auditor wil not bother for his/her own financial interest, when completely unrelated to an audit client.

No, Gray should not accept the audit engagement as he will not be able to maintain Independence as he would be auditing through Computer for which he himself have created the softwareand will create financial allaiance between the Auditor(Gray) and the client which is completely prohibited as per ode of conduct.