The Importance of Conducting an Audit

Published: 2021-06-29 06:57:34
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Category: Business

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Discuss the importance of maintaining the independence in conducting an audit.Independence in an audit is the fundamental quality that allow auditors to operate with professional objectivity, integrity and a critical thinking mind that isn’t influenced by external factors. (Oroney, Campbell and Hamilton, 2016) It is also important for every auditor to not just achieve independence of mind, where they themselves are being ethical and professional, but to also achieve independence in appearance, demonstrating to the relevant parties they’re being true and fair. By showing an unbiased and professional scepticism, the auditor insures that the information presented in the financial reports are understandable, reliable, relevant, true and fair. This process insures intended users and third parties, who rely on the opinion of the auditor regarding the credibility and reliability of the financial report to make sound decisions that would affect their financial wellbeing in the future. (2017 T1 MAA303 Audit - Topic 2 - Ethics and Client Acceptance. (2017).The auditor also has a legal obligation to be in dependence in an audit, this can be seen in legislations and standards such as the APES 110 Code of Ethics for Professional Accountants and s307c of the Corporations Act.Identify the threats to the auditor’s independence in the above case and suggest how these threats might be mitigated.According to Section 290 of the APES 110, there are generally 5 keys categories that threats usually fall into: Self-interest, Self-review, Advocacy, Familiarity and Intimidation. (2017 T1 MAA303 Audit - Topic 2 - Ethics and Client Acceptance. (2017).TYA is a medium based size accounting firm that provides multiple financial services that include auditing, however according to the facts, a large proportion of TYA’s income comes from their audit work for a single client Madeira. This could potentially be identified as a self-interest threat as one could arrive at the conclusion that TYA relies on Madeira for a large sum of their income. Furthermore, TYA has provided consultation to Madeira for their online sales system, a factor that could affect the outcome of their financial statement, thus a high probability of a self-review threat.  (Oroney, Campbell and Hamilton, 2016)Due to maintaining business relationship with the same client, there is a probable chance that this pose a self-interest threat to TYA’s auditor independence. By prolonging the relationship for over 20 years, and by using the same audit team for the past 5 years without rotating a new team, TYA’s independence also runs the risk of familiarity threat. Having a long-term relationship and financial interest in Madeira, there is a likely chance that the audit team could feel the pressure to let Madeira “have it easy” when it comes to their financial reporting.

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