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Audit Quality Vs Audit Independence Essay

1590 words - 7 pages

Word count: 1471
What distinguishes auditing from consulting is the independence requirement in auditing, defined as “the absence of economic interest in the auditee” (Jeppesen 1998). However, he also concluded in this article that “auditors cannot be independent because audit is no longer independent”. This essay will explain and critically discuss the conception of audit independence in conjunction with audit quality by first defining audit independence, followed by definition of audit quality, leading to a discussion of the relationship between audit quality and audit independence. It is argued that however important the concept is, audit independence has potential threats and it is ...view middle of the document...

Mautz & Sharaf 1961 also confirmed this point by saying that the greatest threat to the individual auditor’s independence is “a slow, gradual, almost casual erosion of his honest disinterestedness”. On the other hand, operational independence is the immanent ability of auditing to be independent. It consists of informational independence, which concerns the problem with audting’s fundamental dependence on information supplied by the auditee; and epistemic independence, which defines that the knowledge upon which the auditor’s opinion is based on must be independent. In reality, such independence is difficult to achieve because the audit engagement is based all on data provided by the auditee, which violates informational independence. Another threat to independence lies in the relationship between auditors and auditees. The auditor is hired exclusively by the auditee with the aim of helping the auditee to reach its strategic objectives. For example, KPMG aims to provide services that “improve the reliability and relevance of information used for decision making”. The auditee is also directly involved in choosing the areas or processes to be audited, which on one hand helps the auditor focus his activities (Arthur Andersen); but on the other hand, the participation of auditees in the selection of areas to be audited increases the chances of auditors representing auditees’ self-interests, which means they are no longer independent. Moreover, Gibbins 2008 found that audit partner is the “relationship manager” responsible for keeping the client “happy” and the relationship in a “good” state, because even if he does not do so, the CFO may have several ways to move the auditor role towards what the CFO want in the relationships, namely auditors as “expert advisors” or “police officers”. Bazerman 1997 also found that auditors tend to be far less concerned about imposing harm on the anonymous public than on the known individuals of the auditee’s management, though theoretically, for an audit to be of value, the public perception of independence must be maintained. Having considered different aspects of audit independence using the definition of Jeppesen 1998, it can be argued that audit independence, crucial though it is, is not achievable in real life due to the relationship between auditors and clients.

According to DeAngelo 1981, audit independence is a component of audit quality. This paper defines quality of audit services as “the market-based joint probability that a given auditor will discover a breach in the client’s accounting system and report the breach”. In other words, audit quality consists of competence and independence. Competence depends on the auditor’s technological capabilities, auditing procedures and the extent of sampling. Independence in this manner is the auditor’s independence to report the breach without any interference. Nonetheless, this famous definition has not suggested how to measure audit quality. FRC 2006...

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