Question

1. What do we mean by independence and how can a CPA demonstrate independence?

2. Why can't the external auditor also be the internal auditor for a public company who has to comply with SOX?

Answer 1

1. Independence of the auditor is to mean to act with integrity and exercise objectivity and professional skepticism. The following can be some of the ways in which CPA's can exercise independence :

(i) Avoid apparent conflicts of interest such as executing transactions on behalf of the client, holding the client's stock or having custody of the client's assets.

(ii) Do not provide management services to the client such as book keeping and agreeing to audit the books as well.

(iii) Non acceptance of gifts, favours, frequent social outing, social contracts etc.

2. SOX has been designed to improve transperancy in financial accounting ,prevent frauds and strengthen corporate governance practices. It stresses on the independence of the auditor on a greater note to ensure a fairness of financial reporting. Having internal auditors as external auditors will impair the independence of the external auditor since performing internal audit is a management function. The external auditor if is an internal audit he/ she will be auditing his or her own work and the independence is impaired.