Independence is a critical element CPA’s must consider while completing auditing services for clients. The importance stems from the basic purpose of auditing. To provide an expression of opinion on the fairness of the presentation of the financial statement requires the auditor to be independent both in fact and in appearance. In terms of independence in fact, an auditor should not own stock in the company which he or she is auditing. If the auditor recognizes that the company did not have a strong year, the auditor could sell his or her stock before the public has that knowledge. This outlines the importance of independence in fact. When an auditor is not independent in fact, it leads to biases which lessens the auditors’ professional judgement
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Independence ensures that the public is confident in the integrity of the financial statements. Without this confidence, the public could not feel confident participating in financial markets which would greatly harm the economy. Auditors must further ensure to honor the public’s trust which underlines the importance of being independent in appearance. Auditors have the responsibility to exercise professional judgements when auditing financial statements and the public must trust that their professional judgement is without bias otherwise the reports would be potentially materially misleading.
2. There are number of standard setting bodies, such as the AICPA’s ASB and the PCAOB, that establish independence standards for CPAs. In general, describe the basic rules of independence for auditors and in your view, do the current standards adequately protect the public and provide reasonable assurances that the CPA is independent with respect to audit clients. Please justify your …show more content…
For one, audit firms cannot provide bookkeeping services for the client while doing an audit . This service impairs independence because of the self-review threat primarily. I do not believe that auditors should be generating the reports that they will audit as this limits the amount of internal controls the firm can implement which can lead to questionable situations. Another service the attest firms cannot provide a client who they already have that relationship with is actuarial services1. This falls in line with the advocacy threat which will make the auditing firm not independent as it is in their self-interest as well that the client does well so the client keeps their consulting portion as well. This was a significant portion of frauds such as Enron which later caused regulation with the Sarbanes Oxley Act in 2002. Finally, auditors cannot provide management functions1. This would not allow the auditor to be objective and there will be a bias towards the client in this
Independence ensures that the public is confident in the integrity of the financial statements. Without this confidence, the public could not feel confident participating in financial markets which would greatly harm the economy. Auditors must further ensure to honor the public’s trust which underlines the importance of being independent in appearance. Auditors have the responsibility to exercise professional judgements when auditing financial statements and the public must trust that their professional judgement is without bias otherwise the reports would be potentially materially misleading.
2. There are number of standard setting bodies, such as the AICPA’s ASB and the PCAOB, that establish independence standards for CPAs. In general, describe the basic rules of independence for auditors and in your view, do the current standards adequately protect the public and provide reasonable assurances that the CPA is independent with respect to audit clients. Please justify your …show more content…
For one, audit firms cannot provide bookkeeping services for the client while doing an audit . This service impairs independence because of the self-review threat primarily. I do not believe that auditors should be generating the reports that they will audit as this limits the amount of internal controls the firm can implement which can lead to questionable situations. Another service the attest firms cannot provide a client who they already have that relationship with is actuarial services1. This falls in line with the advocacy threat which will make the auditing firm not independent as it is in their self-interest as well that the client does well so the client keeps their consulting portion as well. This was a significant portion of frauds such as Enron which later caused regulation with the Sarbanes Oxley Act in 2002. Finally, auditors cannot provide management functions1. This would not allow the auditor to be objective and there will be a bias towards the client in this