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Audit Independence and Expectation Gap: Empirical Evidences from Iran
An independent auditor is essential because of the separation of ownership from the management;
The independent factor is the foundation of the public accounting profession and upon its maintenance depend the profession’s strength and its stature. Independence is fundamental to the reliability of auditors’ reports.
The causes for reducing independence are economic dependence of the auditor on the client; audit market competition; the provision of non-audit services (NAS); the regulatory framework. Due to these causes auditors are not able to produce a fair report.
Threats to Independence
Financial interest
Loans and guarantees
Serving as an officer of assurance client
Family and personal relationship
Long association of a senior personnel with assurance client
Provision of non-assurance service to assurance client
Fees and pricing (listed companies>15% of total fees over 2 consecutive years, not independence)
Gift and Hospitality
Actual or threatened litigation
Safeguards
1 Statutory Prohibition
2 Indebted to the Company >RM2,500
3 Company secretary
4 Specified in MIA by- law
5 Rotation of lead engaged auditor
6 Clearly Insignificant
7 Audit fee (relative size
The significance of any threat created should be evaluated and, if the threat is other than clearly insignificant, safeguards should be considered and applied as necessary to eliminate the threat or reduce it to an acceptable level. Such safeguards might include (fees)
Agency theory and the role of audit
Principals appoint agents and delegate some decision-making authority to them. In so doing, principals place trust in their agents to act in the principals’ best interests. However, as a result of information asymmetries between principals and agents and differing motives, principals may lack trust in their agents and may therefore need to put in place mechanisms, such as the audit, to reinforce this
An independent auditor is essential because of the separation of ownership from the management;
The independent factor is the foundation of the public accounting profession and upon its maintenance depend the profession’s strength and its stature. Independence is fundamental to the reliability of auditors’ reports.
The causes for reducing independence are economic dependence of the auditor on the client; audit market competition; the provision of non-audit services (NAS); the regulatory framework. Due to these causes auditors are not able to produce a fair report.
Threats to Independence
Financial interest
Loans and guarantees
Serving as an officer of assurance client
Family and personal relationship
Long association of a senior personnel with assurance client
Provision of non-assurance service to assurance client
Fees and pricing (listed companies>15% of total fees over 2 consecutive years, not independence)
Gift and Hospitality
Actual or threatened litigation
Safeguards
1 Statutory Prohibition
2 Indebted to the Company >RM2,500
3 Company secretary
4 Specified in MIA by- law
5 Rotation of lead engaged auditor
6 Clearly Insignificant
7 Audit fee (relative size
The significance of any threat created should be evaluated and, if the threat is other than clearly insignificant, safeguards should be considered and applied as necessary to eliminate the threat or reduce it to an acceptable level. Such safeguards might include (fees)
Agency theory and the role of audit
Principals appoint agents and delegate some decision-making authority to them. In so doing, principals place trust in their agents to act in the principals’ best interests. However, as a result of information asymmetries between principals and agents and differing motives, principals may lack trust in their agents and may therefore need to put in place mechanisms, such as the audit, to reinforce this