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Auditor independence is commonly referred to as the cornerstone of the auditing profession since it is the foundation of the public's trust in the accounting profession. [1] Since 2000, a wave of high-profile accounting scandals have cast the profession into the limelight, negatively affecting the public perception of auditor independence.
Auditor independence is impaired if a member on the engagement team has a direct or material indirect financial interest in the client. Member's on the engagement team are not allowed to be on the board of trustees of a trust that owns, or has committed to owning more than 10% of the client's equity.
The International Ethics Standards Board for Accountants (IESBA) develops and promotes the International Code of Ethics for Professional Accountants (including International Independence Standards). The IESBA also supports debate on issues related to accounting ethics and auditor independence. [1]
Registered accounting firms that issue audit reports for more than 100 issuers (primarily public companies) are required to be inspected annually. This is usually around 10 firms. Registered firms that issue audit reports for 100 or fewer issuers are generally inspected at least once every three years.
Additionally, independence is of interest to investors who want to know that their investments are being held by highly ethical organizations which works aggressively and diligently to eliminate conflicts of interest. Auditor independence has several levels, set by the SEC, PCAOB and the AICPA.
An audit is an "independent examination of financial information of any entity, ... independence and objectivity are a cornerstone of the IIA professional standards ...
Generally, an employee of the company acts as an internal auditor, whereas some companies appoint an external expert as an internal auditor. [ 1 ] Though an internal auditor is appointed by the management or an employee of the company, independence is the prime requisite for the execution of an internal audit.
When the auditor cannot express an overall opinion, the auditor should state the reasons therefore in the auditor's report. In all cases where an auditor's name is associated with financial statements, the auditor should clearly indicate the character of the auditor's work, if any, and the degree of responsibility the auditor is taking, in the ...