Importance of External Auditors

1117 Words3 Pages
bulb-icon

Recommended: Why ethics is important accounting ; accounting scandals

The aim 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 quality of professional auditing services, and the consequence would be very serious, just like the bankruptcy of Enron led to the disorganization of Arthur Andersen, once a giant accounting company in the world. In order to maintain and increase the independence of external auditors, some activities should be undertake to avoid the overdue market competition in professional accounting industry and enhance the supervising ability of the regulators. .What follow is a detailed analysis of the association between external auditors and companies. The discussion on the importance of independence for external auditors Audit is a process to evaluate and review the accounts and financial statement objectively. We can divide it into internal auditors and external auditors. Internal auditors have a inner knowledge of business process. Auditor has access to the much confidential information and all levels of management. But they may lose their judgement and they are not acceptable by the shareholder. “The overall objective of the external auditors is to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to report on the financial statements in acco... ... middle of paper ... ...pendence, whether pro forma or substantially, the quality of professional assurance service of professional accountants will be doubted by public and that will probably lead to serious results. The factors affecting independence of external auditors are multiple. Market competition among external auditors and the imperfection of laws regulated the external auditing industry are tow of most important factors. In order to maintain and guarantee the independence of external auditors and try to avoid the scandals like Arthur Andersen, some research on how to improve and maintain the independence of external auditors are necessary. It is possible for researchers to put emphasis on how to control the market competition among auditing organizations and enhance the ability of accounting regulators to supervise and manage the professional accounting industry in the future.

Show More
Related

  • Pcorb Ethics And Independence Essay

    1668 Words  | 4 Pages

    Consult PCAOB Ethics and Independence Rule 3520. What is the auditor independence, and what is its significance to the audit profession? What is the difference between independence in appearance and independence in fact?

    Read More

  • Sarbanes Oxley Act SOX

    1881 Words  | 4 Pages

    Sarbanes-Oxley contains eleven titles and covers a wide range of topics from the implementation of new compliance requirements to the criminal penalties of any violations of the rulings. One very important aspect touched upon in Sarbanes-Oxley is auditor independence. Auditor independence and the part an auditor plays in corporate financial reporting in the wake of all the corporate scandals have become extremely important. It has become increasingly important in the training and professional ethics of an auditor. The objective of auditor independence is to have the auditor “be unbiased and impartial with respect to the financial statements and other information they audit”0. There are three aspects of practical auditor independence, programming independence, investigative independence and reporting independence.

    Read More

  • Auditor’s Role: The Importance to Overcome Ethical Dilemmas

    1032 Words  | 3 Pages

    Throughout the years, the news covered stories of corporate scandals involving unethical accounting practices. These unethical corporate acts had a tremendous negative impact on these company’s stockholders, investors, employees and the whole U.S. economy. Most of these scandals would have been prevented, if the independent audits of these companies were conducted in an ethical manner. With this in mind, two corporate scandals will be the subjects of further review to understand that an auditor might encounter ethical dilemmas, if independence and objectivity are not part of the audit process. An auditor should keep objectivity at all times.

    Read More

  • Dodgy Accounting Case Study

    1565 Words  | 4 Pages

    The audit committee should respect the independent opinions from external auditors. Also, there should be certain amount of CPA in the Audit Committee of the Board.

    Read More

  • Critical Analysis: Competitive Audiing And Audit Quality

    1411 Words  | 3 Pages

    Auditing is used to enhance the degree of confidence that users of financial statements have in those statements. This is achieved through gathering sufficient evidence to come to a conclusion on whether the financial statements are prepared “in all material respects, in accordance with the applicable financial reporting framework”. (IFAC, 2013). This usually refers to how true and fair the statements are when looking at the financial position of the company at the end of the period.

    Read More

  • Case Study Of KPMG

    730 Words  | 2 Pages

    A standard audit procedure includes the examining of the financial statements prepared in the light of relevant accounting and reporting standards and evaluating the overall presentation of the financial statements. On the other hand, internal control over financial reporting is a standard procedure by which assurance is provided regarding the reliable preparation of financial statements and their presentation for external purposes in accordance with financial standards. The firm conducted the audit in accordance with the rules which were in compliance with the statute. After conducting the audit, the firm was of the opinion that the company effectively maintained all

    Read More

  • Gain Public Trust by Expanding Going Concern Requirements for the Auditors

    1100 Words  | 3 Pages

    Considering the above mentioned auditor’s responsibilities, they seem vague. Current requirements are not sufficient to gain back the trust of public. The bankruptcies prove that the auditor...

    Read More

  • Worldcom Scandal Case Study

    725 Words  | 2 Pages

    Typically, an independent or external audit is carried out by a neutral third party, such as a professional accounting firm which specializes in audits to provide a fair view of a company’s financial statements. As the economy has just come out of a recession, there are quite a few companies attempted to manipulate their figures to their advantage to possibly drive investment by raising their share price or even give confidence in their company that they are not going to reach bankruptcy. It is external auditors responsibility to spot this to make sure there is no wrong doings present. However, the external auditors may be not independent of their clients for some reason. According to Accounting WEB, there are several factors threating an

    Read More

  • Board Chair Audit Case

    1312 Words  | 3 Pages

    A good internal audit mechanism helps in detecting the frauds at an early stage so that the financial losses may be minimized. Operational audits can be taken up to review the effectiveness, efficiency, and economy of operation. It helps in identifying the risks faced by the organization and has an opportunity to improve controls. The external auditor should also try to obtain sufficient and appropriate audit evidence to be able to draw reasonable conclusions using which audit evidence is provided. Sudden checks have to be planned by the management to keep the staff alert and updated. The audit unit should be established separately, and proper vigilance and guidance are to be provided to them in order to check the frauds at an early stage. The staff, management and the executive officers of the organization have to work for the common good of all the stakeholders of the organization and should follow moral and ethical values while carrying on their

    Read More

  • Fraudulent Accounting: Case Analysis Of Parmalat Spa

    3515 Words  | 8 Pages

    The main role in relation to fraud prevention is the operation of appropriate systems of internal controls, with proper segregation of duties and good corporate governance (this reflects the culture and practices of the organisation). The auditor has to assess and report on the adequacy of these systems of internal controls and segregation of duties. This gives confidence to the users of the financial statements of how the organisation operates on a daily basis. Auditors are in a way act as eyes and ears for users of financial statements into an organisation. They offer both an insight into an organisation and are supposed to act as protector of the law ensuring proper accounting standards

    Read More

  • Chick-Fil-A Case Study

    530 Words  | 2 Pages

    Even though before this time period a company’s auditors were required to maintain an independent view since they were suppose to act as a protector to all end users it was not always the case. An environment was created with a Utilitarian approach that said company’s can offer package services that offer consulting services why at the same time audit the company’s financial statements. But when issue arose it became difficult to jeopardize the superior revenue that was obtained through consulting

    Read More

  • The Purpose of Accounting

    632 Words  | 2 Pages

    ...e financial reports and statements are correct. This auditing will be conducted by auditing department of the organization, even may be done by an independent auditor who is not part of the organization, and sometimes public officials are elected. In case of unmatched consequences the organization need to give explanation on the misrepresentation of wrong statements. Auditors purpose is then to ensure that the misrepresentations are corrected, then maintain accurate, reliable financial documents and statements.

    Read More

  • Audit Risk Essay

    765 Words  | 2 Pages

    Audit Risk is the risk that an auditor has stated an incorrect audit opinion on the financial statements. It may cause the auditors fail to alter the opinion when the financial statements contain material misstatement. The auditor should perform the audit to lower the audit risk to a sufficiently low level. In the auditor’s professional judgement, the auditor should appropriately state a correct opinion on the financial statement

    Read More

  • Understanding Auditors' Duties in New Zealand's Financial Market

    2202 Words  | 5 Pages

    The fundamental duty of an external financial auditor is to form and express an opinion on whether the reporting entity’s financial statements are prepared in accordance with the relevant financial reporting framework. In discharging this duty, the auditor must exercise “reasonable skill, care and caution” (Lopes, J. in Kingston Cotton Mill Co 1896) as reflected in current legal and professional requirements.

    Read More

  • The History of Auditing

    3399 Words  | 7 Pages

    Auditing has been the backbone of the complicated business world and has always changed with the times. As the business world grew strong, auditors’ roles grew more important. The auditors’ job became more difficult as the accounting principles changed. It also became easier with the use of internal controls, which introduced the need for testing, not a complete audit. Scandals and stock market crashes made auditors aware of deficiencies in auditing, and the auditing community was always quick to fix those deficiencies. Computers played an important role of changing the way audits were performed and also brought along some difficulties.

    Read More

More about Importance of External Auditors

Open Document