Why Is It Important for External Auditors to Be...

Why is it important for external auditors to be independent? Relate your answer to the primary role of external auditors? By Zachariah Godfrey-Plews This essay has asked me to look at the importance of external auditors and why it is vital for them to remain independent. I will try and look at the many ways of the advantages of independent auditing from different perspectives for example the company itself, the general public and the state. I think it is important to first define what an audit and an external auditor to be able to answer this question effectively. Firstly an audit is (1)â€Å"an accounting procedure under which the financial records of a company or individual are closely inspected to make sure that they are accurate.† An†¦show more content†¦A independent review from an auditor of the companies accounts will have many benefits to the owner for example for example he/she will be satisfied of the workings of that particular department. This will mean that the owner will have confidence of where they should place their funds or research and development if they know for sure that there department†™s financial record are in order. This will then allow for the best method to allocate resources allowing for greater efficiency and overall the company to be profitable in the future. Also allowing for the report to be independent the report of the auditor will be true and fair in all respects. An independent auditor will also help keep staff of that company in check because of the fear that in the near future the accounts are to be examined and action would be taken against them if any irregular actions have been caused to happen. Thus the independent audit prevents this from starting in the first place and helps keep the staff in a moral check. A report by an independent auditor can also help in the process of borrowing money. As the report will have been done by an independent auditor it then becomes very easy for example a bank to trust this and therefore becomes very easy for them to issue a loan without time or delay. Also it may enable the firm to achieve a better rate than otherwise expected because they may be seen as a less risky investment. This can obviouslyShow MoreRelatedWhy is it important for the external auditor to be independent?1495 Words   |  6 Pagesï » ¿Why is it important for external auditor to be independent? Throughout the years, banks, shareholders, possible investors and creditors always relied on the financial statements produced by a company. Since the management of a company is producing these documents it has been assumed that the managers may act dishonestly so that their performance looks better. To monitor the company’s performance better the directors along with the shareholders employ external auditors to check all these financialRead MoreWhy 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.1648 Words   |  7 Pagesand 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 uncoveredRead MoreWhy 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.1638 Words   |  7 PagesTerm: 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 failureRead MoreThe Importance Of Auditor Independence On An Audit1473 Words   |  6 Pages 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. Auditing is one of the most essential processes that has to be executed in the business world. It involves independent testing on the documents of a business to establish the financial statements are prepared without any material misstatements and maintained as the law requiresRead MoreImportance of External Auditors1110 Words   |  5 Pagesaim of this essay is to study the function of external auditors in order to analyze why it is important to be independent. The primary mission of external auditors is to review and evaluate all the financial records of a company or corporation. They provide an objective opinion on the organization’s financial statement and effectiveness of the accounting polices in order to help management to make decisions. If the independence of the external auditors is impaired, the public will doubt the qualityRead MoreIndependence of External Auditor1203 Words   |  5 PagesIndependence of external auditor By:- shubham kanchhal Auditor independence  refers to the independence  of the auditor  from parties that may have a financial interest in business being audited. Independence requires integrity  and an objective approach  for the audit process. This concept requires the auditor  to carry his work freely and in an objective manner. The purpose of an audit to enhance the credibilityRead MoreThe Impact Of External Auditors On The Financial Position Of The Company1422 Words   |  6 Pages INTRODUCTION External auditors are accountants who work independently of a particular company employed by a firm to inspect their financial statements by analysing the performance of the company and presenting an audit’s report. They plays an important role to enhance the user’s confidence, including shareholder and creditor with an expert, independent opinion whether the annual records of the company are prepared according to accounting standards of the entity, such as Generally AcceptedRead MoreAuditing: Understanding the Auditors Report1536 Words   |  7 PagesAS1 1-30: It has been stated that auditors must be independent because audited financial statements must serve the needs of a wide variety of users. If the auditor were to favor one group, such as existing shareholders, there might be a bias against another group, such as prospective investors. a. What steps has the external auditing profession taken to minimize potential bias toward important users and thereby encourage auditor independence? ---The external auditing profession as a whole has becameRead MoreEthics And The International Professional Practices Framework1501 Words   |  7 Pagesrole of an auditor and their importance in the work force and what attracts me to the job and why I am interested in PwC and what I hope to gain from the scheme. What is Audit/Auditor? The Business Dictionary defines audit as â€Å"A systematic examination and verification of a firm’s books of account, transaction records, other relevant documents, and physical inspection of inventory by qualified accountants†. Auditors can be split into two different divisions, internal auditors and external auditorsRead MoreEssay about External Auditors Must be Independent1154 Words   |  5 Pagescrash of Enron in US, followed by the worldwide collapse of its auditor, Arthur Andersen became one the most popular accounting scandal where it is still being talked about even after a decade has passed. Following this scandal, other massive organizations like WorldCom (2002), AIG (2004), and Satyam Computer Services (2009) shared the same fate. Since then, there have been questions being asked on the issue of the independence of auditors being one of the major contributors to these accounting scandals Why Is It Important for External Auditors to Be... 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,†¦show more content†¦Improvements in reliability of corporate revelation minimize the threat that an investor or a creditor will make poor decision if the information which is provided to them is inaccurate. The threat that is mentioned above is the information risk, that is present everytime creditors or investors use information to assess economic risk of any potential investments. The better the quality of the information, the better chances these users making the right decisions. It means the information risk is lower (Elliott and Jacobson, 1998). Moreover, when investors and creditors make preferable decisions on capital allocation for their self-interest, capital flows more freely to the most fruitful business entities, increasing economic growth, jobs and standard of living. Those are considered as social benefits from effective capital markets and, hence, social benefits of auditings contribution to effective capital markets (Elliott and Jacobson, 1998). In spite of this, the costs of audit independence incurred by the company directly (for example, monitoring adherence to independence policies and the cost of review of independence quality control during peer review). Some are incurred by regulators and profession as a whole (for instance, the cost of developing SEC or ISB independence requirements, and others by the clients (such as forgone the scale and scope ofShow MoreRelatedWhy 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.1648 Words   |  7 Pagesand 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 uncoveredRead MoreThe Importance Of Auditor Independence On An Audit1473 Words   |  6 Pages 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. 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