An audit is the examination of the financial report of an organization, as presented in the annual report, by someone independent of that organization. The financial report includes a balance sheet, an income statement, a statement of changes in equity, a cash flow statement, and notes comprising a summary of significant accounting policies and other explanatory notes.
The purpose of an audit is to form a view on whether the information presented in the financial report, taken as a whole, reflects the financial position (fair picture) of the organization at a given date. This entire task of auditing is performed by an auditor.
When examining the financial report, auditors must follow auditing standards (ISA). Once auditors have completed their work, they write an audit report, explaining what they have done and giving an opinion drawn from their work. Their work is very important as they are the ones who assure all the stakeholders that the financial statements are true and fair. Generally, all listed companies and limited liability companies are subject to an audit each year. Other organizations may require or request an audit depending on their structure and ownership.
One very essential feature in the process of auditing is “Auditor independence”. It can be defined as a reference to the independence of internal or external auditors from parties that might have a financial interest in the business being audited. Therefore both the client and the appointing authority should have no influence over the auditor as this may lead unfair reporting and a biased auditor’s report that is against the guidelines.
I think there should be no influence of the client on the auditor especially because of all the cases we hear about where companies and firms fabricate the financial statements in order to show or present a fictional image of the firm. In a case where the client and the auditor have fruitful relations, these fabricated statements can be approved by the auditor resulting in tax savings and several other advantages for the company though it is totally unethical.
Similarly an appointing authority can also force the auditor to perform his task in a certain way that is to their advantage. Maybe they might want extra revenues for which the auditor might have to force the firm to change a few numbers etc. The point here is that the auditor should have the freedom to perform his task freely, without any pressure or influence from the concerned parties.
But the only concern here is related to the integrity and honesty of the auditor himself. If he has some self-interest in the entire process, then this independence can be very harmful. Therefore I think that there should be a regulatory body that keeps a check on the work of the auditors without having any major influence on them. This will prevent the auditors from engaging in any unethical activity.
On the whole, it’s not just about the independence that the auditors have, but about the quality and effectiveness of their work. They must be honest and brave enough to perform their duties correctly and understand situations and act accordingly. The end product that they produce is all that matters and audit independence is just one of the factors that affect the quality of the audit. Thus independence to a large extent should be present for the auditors but at the same time there must be some regulatory body that keeps an eye on their work just to make sure that they work for the interest of all the stakeholders and not just a few.