MEANING OF THE EXTERNAL AUDITOR INDEPENDENCE External auditor independence defined as ethical of the auditor from parties that must be the profession for the financial interest of the business being audited Basically the role of external auditor independence is supervisor process that requires independence to give the opinion as to whether the annual accounts of the company reflect a true and fair view in the financial position of the company follow required by IFRS International Financial Reporting Standard Furthermore External Audit process is valid if it follows the regulated by law and by audit standard ISA
International Standard on Accounting International Federation of Accountants IFAC cover that external auditor independence they need to be independence both in appearance perceived independence and in mind real Independence by using auditing standard The both of that is very important to achieve to be Independence Independence in appearance is about to avoid from having the relationships Then he or she also need to avoid the situations that can threaten or may be seen to threaten Other than that the willingness and ability to analyze in auditor self need can make a complaint to managers such as the auditor need have an advisory role or decision making to the client firm that can impair the auditor's objectivity Independence in mind of the external auditor is providing an opinion that does not affect the influence that compromises professional judgement He or she should be objective and free from bias
Furthermore they also should be prepared to encounter clients and keep a good degree of scepticism joined with an inquisitive mindset However knowledgeable is the ability of an auditor to make their decisions on reporting to challenge managers so that the education and training are important for auditor role In The Companies Act 1965 had been mention that company's Financial Statement must be an audit and it performed by the auditor that approved company Under section 8 to performance as the company an approved company auditor need to have a licensed which is approved by the Minister of Finance This approval is affected by permitting of an audit license which is valid for a period of two years and is subject to renewal The external auditor is being a proxy for the shareholders and they are selected to carry out audit work on behalf of the audited company s shareholders Basically shareholder needs the external auditor to be independent of the audited firm s managers They also assign by a client is to audit of financial statements to ensure their financial statement are accurate and free of material misstatement under any circumstances and ensure the report based on ISA and follow the ISA procedure
IMPORTANT Independence words are referred to the auditor that should not be involved to have connected with a company during audit processes in keeping the accounting records However there is some importance for the external auditor independence If the auditor lacks the independence they maybe fail to complete the audit report Then the credibility and assurance of an external audit will lower Auditor independence can provide the credibility and reliability of auditor's reports so that it will impact on audit quality and fundamental Otherwise the concept that required be independence is freedom from bias and personal interest Hereby the audit opinion will not be affected by other and appear to be objective It also will encourage those who are relying on the financial reporting especially shareholder of the company During the audit process the auditor independence needs to face the ethical threat so that they need to be independence The close relationship between client and auditor may happen during audit process period If they work together for a long time the quality of audit will be slack and the relationship maybe creates either with staff executive nor BOD of the company client s Sympathetic can arise since there is a relation between them
An example is getting gifts from the audit client either BOD or employee to the auditor Relevant case to proof of threat is Enron Moreover External auditor independence sometimes expressed concerning doubts It can happen went the wish to maintain the good relationship between auditors with the client The auditor can easily give opinions and make some judgement to client causes having influenced by the relationship The shareholder cannot rely on opinions when situation happen and the auditor is no longer to be said as independence Independence in mind is the criminal that happens by the auditor itself This situation is because of the external auditor 100 freedom to give their opinion during the audited process However for the independence in appearance is the responsibility of the audit committee Hereby an auditor should create an audit opinion based on evidence recovered during the audit process and unbiased
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