Question

You are an audit partner in a Small CPA firm. One of the audit managers who works for you, Alan Robinson, has emailed you about a prospective audit client, Stanley Thornton, with whom he ahs been talking. Mr. Robinson is concerned because the prospective client has made it clear that if he hires your firm he will expect your firm to be his advocate and always act in his best interests. In other words, Mr. Thornton expects your firm to be in a relationship with him similar to the relationship he has with is attorney. Alan Robinson is a little uncomfortable with that expectation, but does not know how to respond. He is seeking advice. Reply to Mr. Robinson’s email advising him to discuss the necessity for independence in the audit, the broader responsibilities of a CPA firm, and how CPA firms differ from other professionals in that regard. Elaborate upon these issues, giving Mr. Robinson some ideas of how to explain them to Mr. Thornton.

Answer 1

The overall objective of an audit is to express an independent opinion on the financial statement, independence implies that the judgement of a person is not subordinate to the wishes or direction of another person who might have engaged him. Firms and audit assurance team must follow certain policies while performing the audit one such policy is to maintain independence in his opinion so that he can draw a true picture of the company's financial performance and operating efficiency. The independence of the auditor and the firm is ensured through certain laws and acts which states the services from which a audit firm or auditor is prohibited from, one such prohibited non-assurance service is to act as an advocate for the client.

Responsibilities of a CFA Firm

1. To  follow Principles of Professional Conduct, members should exercise sensitive professional and moral judgement in all activities
2. Members should accept the obligation to act in a way that will serve the public interest, honor the public trust and should maintain professional integrity.
3. Objectivity and Independence, A member should be free of conflicts of interest in discharging professional responsibilities he should be independent in fact and appearance when providing auditing and other attestation services.
4. The professional should keep ethical standards, strive continually to improve competence and quality of service.

The audit firm must be fair and must not allow prejudice and bias to override his objectivity. The firm should maintain an impartial attitude and both be and appear to be free of any interest which might be regarded as being incompactible with integrity and objectivity

Threats to Independence : Advocacy threats, which occur when the auditor promotes a client's opinion to a point where people may believe that objectivity is getting compromised e.g. firm becoming client's advocate in litigation and third party disputes.

Therefore to express true and fair opinion on the financial position and operating efficiency of the company independence of opinion should be ensured.