"Essential distinguishing characteristics of audit are the independence of status and freedom from investigato

Question

ACTIVITY 2.2 Another postulate of auditing formulated by flint reads as follows: "Essential distinguishing characteristics of audit are the independence of status and freedom from investigatory and reporting constraints." I n other words, the auditor has to be free from any relationships with the company, its management and its user groups that would threaten the credibility of the auditor's report. Auditors are allowed freedom in their search for evidence and the way in which they report. Now consider the following questions:

1 What do you think is meant by 'independence of status' in practical , terms?

2 Why do you think that it is important?

3 Do you think that the above postulate is a helpful starting point for

recognizing that auditor independence is a vital element in making the

audit report believable?

Answer 1

1-  The two parties (auditor and company) are not affiliated, hence the auditor will not benefit, or be harmed by, the results of his audit of that company.  

2- This way, the auditor will not be tempted to alter the results of his audit. Some companies may try offering a bonus to the auditor if their results end up positive for the company. This is virtually bribery, and it can cause manipulation and devastation in stock markets along with the criminal indictments of those involved.

3- It is necessary. An audit cannot be trusted if there is a possibility that the audit was altered to benefit the company. An audit must be factual, short and simple. (Think of ENRON, we don't want that).