The Importance of External Auditor’s Independence Essay
1614 WordsNov 27th, 20127 Pages
The Importance of External Auditor’s Independence
According to Gillespie, Lewis and Hamilton (2004:221) an audit is:
“a scrutiny of the accounts by a qualified auditor who carries out checks on the figures so as to establish whether the accounts show a true and fair view of the results and the financial position of the entity.”
According to Wikipedia (2011a), auditor independence refers to “an attitude of mind characterized by integrity and an objective approach to the audit process”. Independent auditing has been an important part of the corporate monitoring system since the mid-1930s, when it became a legislation requirement after the Great Depression. This was caused by reckless spending by corporations in the late 1920s (Kim,…show more content…
The auditing firm then also became defunct after a jury ruled against them for obstructing justice; after they had shredded documents of their auditing of Enron (Thomas, 2002). This was evidence to the potential of failure in independence between the corporation and the auditor.
Therefore the lack of auditor independence may impact adversely on an audit in many different ways. Other than the two examples previously mentioned above, there have been many other corporations that experienced adverse reactions due to bad accounting practices and the lack of auditor independence. The independence of external auditors had been brought into question because of the potential influence the corporations had on its auditors. It used to be the duty of the corporation’s CFO to employ an external auditor. Therefore if the auditor’s report was not particularly favourable for the CFO, the CFO could decide to fire them and choose an auditor who would be willing to express a much more favourable view of the financial accounting of the corporation. This then led to the Sarbanes-Oxley Act of 2002 which gave the responsibility of choosing an auditor to an audit committee rather than the CFO (Locatelli, 2002). However there are still many other corporations that have experienced problems as a result of the lack of auditor
...“The general lesson is that true independence is our ability to find the truth for ourselves and has nothing to do with our tendency to distance ourselves from others.” ( Antonia Macaro & Julian Baggini, 2011) Independence is the state or quality of being independent, also freedom from control, influence, support, aid or the like of others. (Dictionary.com, 2012) There are few virtues more important than independence. Independence is a requirement for leading your own life, having your own rules, standards, and way of conducting business as an individual or a country on a whole. How can one make a decision if every action that is taken has to go through many channels before it reaches to the receiver? Without independence, one cannot be the designer of their destiny. You must be satisfied toiling in the canfields while someone sets the direction you are to take. Don’t get me wrong, independence doesn’t mean you don’t need other people’s input. Most people or country wouldn’t last long without the assistance and support of those with greater influences. Independence summed up means you add at least as much value back as is given to you in any kind of transaction. This shows the importance of independence to an individual or a nation nationally, socially, and intellectually. Jamaica as a nation has steadily progressed since...