Instructions for Auditing and Independence
*A – Research and write a 3-page paper (3 full pages of text) on the concept of independence as it relates to the audit process. Include why independence is important, scenarios where you would question the independence of the auditor, and examples of problems that have been caused due to a lack of independents. (example, the Enron scandal, how the Sarbanes–Oxley Act resulted in legislation that attempts to solve this problem)
*B – Paper should be in APA format and include an introduction, body, and conclusion. Cite where needed and reference. No less than a minimum of 2 sources.
**Paper must address all the issues in A above and state information in a clear and supportive manner.
**Report must be well organized and professional.
** Please use legitimate, easily find-able sources. If it is an internet source make them US sources only, no foreign web sources, (I say this because some writers have used sources that I could not find later, and I do check these) with working links please.
Auditing is the systematic and independent analysis of financial accounts, books, statutory records, vouchers and other financial documents to ascertain the trustworthiness of both financial and non-financial disclosures. Also, the process ensures that the involved parties keep financial records as required by law. Since the process involves ascertaining the trueness of the presented information, it is necessary that independence is maintained to ensure fairness to all the concerned parties (U.S. Securities and Exchange Commission, 2001). Different types of audits exist and include external and internal audits. The external audits are undertaken by third parties, who are independent of both the supplier and the customer. On the other hand, internal audit exists in two forms; first party review that is undertaken within the organisation to measure the strengths and weaknesses, and second party audit where the concerned party contracts the services of audit agencies. Whichever the type of audit performed, it is important that independence is maintained. The essay looks into the concept of freedom as far as auditing is concerned, its importance in the process and scenarios where independence is questionable.
Independence of the Audit Process
The main reason for auditing is to provide the business stakeholders with an independent expert opinion, on whether the yearly accounts of the firm represent a fair picture of the existing financial position and its reliability. For the audit opinion to be reliable, it should be independent of any possible influences, which will in turn provide the auditors with a conducive environment to give an unbiased and honest opinion on the firm’s financial statements. Internal auditors face the challenge of manipulation by those whose interests might be influenced by the outcome of the audit process. On the other hand, the external auditors get immense pressure from parties that have an interest in the results of the entire publications of the financial statements (U.S. Securities and Exchange Commission, 2001)….