Auditor Independence

INTRODUCTION

The auditing process is carried on in every business to check the performance and the result based on that performance. To this reason the audit report is issued. The auditor's duty is to check, are the accounts of the company has been genuinely made or not. To check this activity external auditors are hired by the company.

The auditors should be honest and straightforward regarding his professional. He must be fair to his work and his objective; he should not make any biasness in conducting his duty. He should not make any manipulations in accounts for his betterment and he must show whatever the actual figures are.

Royal commissioner recommendation report and argument against Professor Ian Ramsey's view for the harmonisation of auditor independence being discuss briefly. The failure of HIH and Enron in 2001 create the new concern and issue for regulators and legislators regarding the independence of auditor, their role and their duty of care towards the shareholders and the public

The auditing process is a vital role in the company's financial matter. This role of auditor is needed in HIH and Enron by Anderson, from which the true financial position and performance of company can be known by the government, which plays a vital role in making stable financial economic position of a country. If the true picture of company's financial position is shown in audit report, all the share holders, lenders, creditors etc can rely on the accounts confidently. The stable financial position can be useful to shareholders whether to continue in the business or not. (Law, 2010)

Concept of auditor independence

An audit is an examination of financial statements or other financial data made in accordance with generally accepted auditing standards. The overall objective of an audit is to express an opinion on whether the financial statements are presented fairly in conformity with generally accepted accounting principle. As independent auditors, they may influence the form and content of the client's financial statements. However, while they may propose adjustments and modifications, in the final analysis the client's directors and management make the ultimate decisions in line with their overall responsibility for the representations made in the financial statements. (Law, 2010)

Independence in auditing means taking a fair viewpoint in the performance of audit tests, evaluation of the results and the issuance of the audit report. Independence is one of the auditor's most vital characteristics and is fundamental to the principles of integrity and objectivity. The audit report is for a shareholder not for the management and the perception, as well as the reality, of independence is fundamental in supporting investor confidence in the integrity and credibility of audited financial statements.(Arens & all, 2009)

The auditor is free to show any accounts of the company regardless of the company's profile. He is free to shoe all the genuine accounts and the appearance of the accounts, if the auditors do so he is said to be the effective auditor.

Auditor independence could be compromised if a member of client finance staff was a recent colleague of audit staff; or if current auditors had an expectation that they could obtain an appointment with the client in the near future.

Auditor independence issues in HIH and Role of Arthur Andersen

Andersen submitted that the term ‘corporate governance' does not include the scope or quality of Andersen's audit work and should be limited to such matters as Andersen's appointment, the procedures for communication between Andersen and the HIH board and the activities of the HIH audit committee. (Ian Fraser, Chris Pong, 2009)

In 1999 and 2000 HIH audits, auditing standards AUS 206 dealt with the requirement as to how the quality of audit can be controlled. AUS placed an obligation to control audit, some of the policies and systems and procedures to control the individual audit and it is communicate with the personnel of the company. The auditor has to implement those policies and procedures which the auditors think are appropriate. (Robinson, 2003)

The Andersen audit team applied SMART to assess the risk that the retention of HIH as an audit client posed to Andersen, including the assessment of a number of detailed ‘risk drivers'. This process culminated in an ultimate classification of risk. From 1998 to 2001, HIH was assessed as a maximum risk client. Despite that assessment, the decision was made to retain HIH as an audit client in each year with limited apparent consideration of the risk identified by Andersen's own procedures. Each year, the same reason was given for that justification, namely that HIH was a longstanding