independence of auditors


independence of auditors
The fundamental principle that auditors must be, and must be seen to be, independent to enable them to behave with integrity and make objective professional and business judgments. Specific threats to independence include:
• an overdependence upon the fees paid by an audit client, especially if fees are overdue;
• any family or personal relationship between auditor and client;
• any beneficial interest held by the auditor or the staff of the practice in shares or other investments or trusts involving the client;
• any loan between an auditor and the client;
• any services or hospitality offered by an audit client to the auditors;
• any services other than the audit provided by the auditor to the client;
for example, an auditor may tender for audits by quoting a low audit fee with the intention of attracting more lucrative consultancy work (so-called lowballing). The independence of the auditor is strengthened by the Companies Act regulation of the qualification of auditors and by conferring certain rights on the auditor. The professional audit bodies give ethical guidance designed to deal with each of the above situations.

Accounting dictionary. 2014.

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