Auditing Theory and Practice: A Focus on Professional Responsibility
Auditing Theory and Practice
Case 1
WorldCom: A Focus on Professional Responsibility
Prepared by: EL Ahmadi Med Reda
Worked With: Ibtihal Slassi
Fall 2013
1- Auditor independence refers to the disinterest from the internal and external parties that could influence the professional judgment of an auditor. In other words, auditor independence is the lack of any interest that may create a threat or a risk of material bias regarding the reliability of the financial statement. Furthermore, the main aim of auditor independence is to improve the consistency and the reliability of information that might be used in decisions making. Another role of the auditor independence is to enhance the cost-effectiveness of the “capital market”. It will help also the investor to avoid the poor decisions and make sure that the information given is perfect and more accurate.
Independence can be considered as an important component of the auditing profession. Moreover, both objectivity and independence are essential for the audit’s profession, because without these two elements this profession will have no sense in terms of reliability:
“If public accountants are perceived as biased, non-objective, or self-serving, their value as potential assurance providers is essentially eliminated.”
-Independence in fact is when an auditor is unbiased regarding his opinion about the financial statement. This kind of independence plays an important role when it comes to determine the quality of the audit performed.
Independence in appearance can be defined as the point of view of the public that the auditor is independent. According to the IFAC (International Federation of Accounting) that determine the elements that are considered as a threat to the interdependence, which are :
An auditor should not have financial interests with a client.
An auditor should not have a family relationship with his client.
An auditor should not provide a client with services
Case 1
WorldCom: A Focus on Professional Responsibility
Prepared by: EL Ahmadi Med Reda
Worked With: Ibtihal Slassi
Fall 2013
1- Auditor independence refers to the disinterest from the internal and external parties that could influence the professional judgment of an auditor. In other words, auditor independence is the lack of any interest that may create a threat or a risk of material bias regarding the reliability of the financial statement. Furthermore, the main aim of auditor independence is to improve the consistency and the reliability of information that might be used in decisions making. Another role of the auditor independence is to enhance the cost-effectiveness of the “capital market”. It will help also the investor to avoid the poor decisions and make sure that the information given is perfect and more accurate.
Independence can be considered as an important component of the auditing profession. Moreover, both objectivity and independence are essential for the audit’s profession, because without these two elements this profession will have no sense in terms of reliability:
“If public accountants are perceived as biased, non-objective, or self-serving, their value as potential assurance providers is essentially eliminated.”
-Independence in fact is when an auditor is unbiased regarding his opinion about the financial statement. This kind of independence plays an important role when it comes to determine the quality of the audit performed.
Independence in appearance can be defined as the point of view of the public that the auditor is independent. According to the IFAC (International Federation of Accounting) that determine the elements that are considered as a threat to the interdependence, which are :
An auditor should not have financial interests with a client.
An auditor should not have a family relationship with his client.
An auditor should not provide a client with services
Bibliography: aicpa. (2012). Analytical Procedures. DOPUCH, N., KING, R. R., & SCHWARTZ, R. (2004). Independence in Appearance and in Fact:An Experimental Investigation. EES 2004 : Experiments in Economic Sciences - New Approaches to Solving Real-world Problems. Fearnley, S. a. (2005). Auditor Independence and Audit Risk: A Reconceptualisation. Journal of International Accounting Research, 39-71. Fjodorowa, O. (2013, March 13). A proposal to increase auditor independence in fact and in appearance. pp. 1-9. (n.d.). Retrieved from http://pcaobus.org/Pages/default.aspx. (n.d.). Retrieved from www.pcaob.org.