Question

what is the role of audit committees in aiding auditor independence?

Answer 1

Auditor Independence

It refers to the independence of auditors from parties that may have a financial interest in the business being audited.

The Sarbanes Oxley Act 2002 mandates audit committees be directly responsible for the oversight engagement of company's independent auditor.Audit committee members should be independent, because they should know how to do their work without having have someone to check their to make sure everything is right.

Role of Audit committee in aiding Auditor Independence

• Independence consideration

When considering the independence of a potential auditor, the audit committee should take a broad view to capture any relationship or services that could be viewed as impairing inependence.As a general rule, Independence would be deemed impaired and the work should not be undertaken if the audit service under consideration would

1. creates a mutual or conflicting interest with their audit client
2. places them in the position of auditing their own work
3. results in their acting as management of an employee of audit client.
4. places them in a position of being an advocate for the audit client.

• Prohibited services

Sarbanes Oxley Act enumerated certain prohibited services, thus the auditor cannot provide these following non audit services to clients.

1. Bookkeeping.
2. financial information system design and implementation.
3. actuarial services.
4. outsourcing services.
5. management function or human resource.