The Importance of External Auditor’s Independence Essay

The Importance of External Auditor’s Independence According to Gillespie, Lewis and Hamilton (2004:221) an audit is: â€Å"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 â€Å"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 hav e experienced problems as a result of the lack of auditorShow MoreRelatedIndependence of External Auditor1203 Words   |  5 PagesIndependence of external auditor By:- shubham kanchhal Auditor independence  refers to the independence  of the auditor  from parties that may have a financial interest in business being audited. Independence requires integrity  and an objective approach  for the audit process. This concept requires the auditor  to carry his work freely and in an objective manner. The purpose of an audit to enhance the credibilityRead MoreWhy Is It Important for External Auditors to Be Independent? Relate Your Answer to the Primary Role of External Auditors. 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