A REVIEW OF THE INDEPENDENCY OF THE INDEPENDENT AUDITOR

CHAPTER ONE

1.1          INTRODUCTION

Most of the inquest into major auditing failures during the last decades or so aroused certain questions about the independence of the auditors.

Independence has become an emotive word which stands for freedom, integrity and all that is good. Years back, auditors were often required to hold shares in their client companies so as not to be too independent. However, the qualities of independence is free, unhindered, emancipated or liberated and free from dominance or influence.

Professional independence is a concept fundamental to the accountancy profession. It is essentially a way of thinking of the mind characterized by integrity and objective approach to professional work. Accountants believe that the process of accountability is incomplete without an audit; which off course can only be meaningful if the person performing it is independent.

The auditor should be an independent person who is appointed to investigate the organization, its records and the financial statements. The primary aim of an audit is to produce a report of his opinion of the truth and fairness of the financial statements, so that any person reading and using them can have belief in them.

Essentially, the major value of an audit depends to a large extent on the degree of confidence reposed in it by the public and therefore, it is a fundamental principle that not only must the auditor be independent in fact and attitude of mind but he must also be seen to be independent that is appearance of independence and there are many stakeholders in this issue: It is no surprise therefore, that the appearance issues has proved to be the key point in the discussion of the auditors independence.

It is worthy of note that the questions relating to the effective independence of the auditor started to arise at the inception of the company form of business in the early 17th century. This steadily expanding influence of the auditor arose from the increasing complexity of the modern industrial world, and its greater emphasis on accountability. However, the recent business failures caused by management illegal acts like in the case of “a bank being certified healthy today by an auditor and going into liquidation in less than a financial year”, has created a growing atmosphere of criticism about auditors’ independence.

Factors that had lead to this include:

Firstly, increasing competition among firms for audit appointment has presented an image of auditors fighting for directorsfavour.

Secondly, the growth of non-audit services has created a suspicion that auditors’ independence might be sacrificed for the sake of obtaining a non-audit work.