Why Is It Important for External Auditors to Be Independent? Relate Your Answer to the Primary Role of External Auditors. Give Examples of Specific Ways the Lack of Auditor Independence May Impact Adversely on an Audit.
Name: Nguyen Thi Hong My
Library card number: 33237972
Word count: 1304 words
AcF 100 Introduction to Accounting and Finance
Lent Term: Individual Coursework Essay
Topic: Why is it important for external auditors to be independent? Relate your answer to the primary role of external auditors. Give examples of specific ways the lack of auditor independence may impact adversely on an audit.
In 2001, there was an event that had shaken the whole business world. The crash of Enron in US, followed by worldwide collapse of its auditor, Arthur Andersen. It was a greatest corporate failure uncovered in business history. Follow the Enron-Andersen scandal, massive organizations like WorldCom, Xerox and Waste Management confront a similar fate. The debate rested on the issue of audit independence , that is found to be one of the major contributors to crashes like Enron. It is explained that the impact of lack of audit independence is extremely great to the audit quality (Abdullah, 2004). This essay, is trying to define what is 'independence' and discuss about the relationship between independence and quality of external auditors.
First of all, it is good to know what is the external auditors and its primary role. External auditing is an observation of annual financial reports of a corporation, for example, Balance Sheet, Profit and Loss account and cashflow statement. It is done by someone independent of that business, who play no part in day-to-day running of the organization and must not be controlled by the management of that corporation (St Helena Audit Service, 2006). The external auditors perform a key role in developing internal control, however, they do not have any benefits of working with company on every basis. The role and process vary from country to country, due to the developments of Financial Accounting Standards Board (FASB) merging with International Accounting Standards Board (IASB).
The
Library card number: 33237972
Word count: 1304 words
AcF 100 Introduction to Accounting and Finance
Lent Term: Individual Coursework Essay
Topic: Why is it important for external auditors to be independent? Relate your answer to the primary role of external auditors. Give examples of specific ways the lack of auditor independence may impact adversely on an audit.
In 2001, there was an event that had shaken the whole business world. The crash of Enron in US, followed by worldwide collapse of its auditor, Arthur Andersen. It was a greatest corporate failure uncovered in business history. Follow the Enron-Andersen scandal, massive organizations like WorldCom, Xerox and Waste Management confront a similar fate. The debate rested on the issue of audit independence , that is found to be one of the major contributors to crashes like Enron. It is explained that the impact of lack of audit independence is extremely great to the audit quality (Abdullah, 2004). This essay, is trying to define what is 'independence' and discuss about the relationship between independence and quality of external auditors.
First of all, it is good to know what is the external auditors and its primary role. External auditing is an observation of annual financial reports of a corporation, for example, Balance Sheet, Profit and Loss account and cashflow statement. It is done by someone independent of that business, who play no part in day-to-day running of the organization and must not be controlled by the management of that corporation (St Helena Audit Service, 2006). The external auditors perform a key role in developing internal control, however, they do not have any benefits of working with company on every basis. The role and process vary from country to country, due to the developments of Financial Accounting Standards Board (FASB) merging with International Accounting Standards Board (IASB).
The