Discussion Week One Question One
Shenice Mohammed
Hello everyone,
In this week’s topic, we will discuss auditors' independence and the importance behind it.
Independence ensures that auditors do not have any financial interest in the firms in which they
are auditing. The auditor must be independent for the entire engagement period and the period
covered by the financial statements being audited. The only way independence will no longer be
active is when the relationship is considered terminated and they no longer are contracted by the
client (Securities and Exchange Commission., 2022).
However, if for any reason the auditor has to re-issue former opinions on the financial statements
then this becomes a necessary phase for the auditors to be independent of the audit restatement
adjustments prior to reissuing its opinion. Under the Sarbanes Oxley Act of 2002, it mandates
that the audit committees be directly responsible for the oversight of the engagement of the
company’s independent auditor. The Securities and Exchange Commission’s rules are also
designed to ensure that auditors are independent of their audit clients (Securities and Exchange
Commission., 2022).
To be independent, the auditor must be honest, and to be recognized as independent, the auditor
must be free from any obligation to or interest in the client, its management, or its owners. This
avoids the auditor from being viewed in the public eye as dishonest and unbiased. Auditors
should not only be independent, but they must avoid situations that may lead outsiders to doubt
their independence (Public Company Accounting Oversight Board., 2022).
Under the AICPA requirements and the Code of Professional Conduct and within the code, it
provides specific rules of conduct, and one of the important and most critical one is the
independence rule. “The independence rule requires that a member in public practice be
independent in the performance of professional services as required by standards promulgated by
bodies designated by the AICPA.” (Gramling, A., Johnstone, K., & Rittenberg, L., 2019). This
rule applies to only the covered members, which means that the individual that is on the
engagement team, can influence the engagement, and provides more than 10 hours of non-attest
services to the client (Gramling, A., Johnstone, K., & Rittenberg, L., 2019).
All members need to care about the view of independence. The SEC has defined independence in
fact and independence in appearance as two different things with similarities that are necessary
factors when it comes to establishing the objectivity and integrity of auditors. When we talk
about independence, in fact, its auditors are unbiased which is essential to all audits, but where
the issue comes in is that independence in fact sometimes cannot be seen. A biased auditor may
allow unethical behavior in order to benefit, for example, allowing some things to go unseen to
benefit the stock market which in turn will benefit the auditor who may have shares within the
company. However, these types of issues can lead to destruction and potentially reduce the value
of financial statements to users. Independence in an appearance on the other hand is based
entirely on perceptions which can be a total problematic area because what we perceive does not
necessarily have to be true (Almer & Olazabal., 2001).
-SMohammed
Almer. E., & Olazabal. A. (2001). Independence and public perception: why we need to care? Retrieved
from:
[Link]
[Link]
Gramling, A., Johnstone, K., & Rittenberg, L. (2019). Auditing a risk-based approach, 11th ed. Boston, MA:
Cengage Learning.
Public Company Accounting Oversight Board. (2022). AS 1005: Independence. Retrieved from:
[Link]
Securities and Exchange Commission. (2022). Audit committees and auditor independence. Retrieved
from:
