Importance of External Auditors - 1110 Words

The aim of this essay is to study the function of external auditors in order to analyze why it is important to be independent. The primary mission of external auditors is to review and evaluate all the financial records of a company or corporation. They provide an objective opinion on the organization’s financial statement and effectiveness of the accounting polices in order to help management to make decisions. If the independence of the external auditors is impaired, the public will doubt the quality of professional auditing services, and the consequence would be very serious, just like the bankruptcy of Enron led to the disorganization of Arthur Andersen, once a giant accounting company in the world. In order to maintain and increase†¦show more content†¦If the external auditors cannot maintain their independence in their service, the clients will lose their interests in the auditing service, and the external auditors will lose their source of revenue. The lack of independence for external auditors will lead to the neglect of auditing risks (William R.K., 2003), which are the main reasons for the failure of certified accountants and professional accounting organizations. The consequence of the external auditors deprived of independence would be very serious. And there are many cases, which aroused by the failure of external auditors and most are related to the lack of independence. One famous example is the bankruptcy of Enron and the role played by its external auditor, Arthur Andersen (Todd, S., 2003). Arthur Andersen was once one of the biggest accounting companies in the world, and was canceled for the involvement in the Enron bankruptcy scandal. Arthur Andersen supplied external auditing service to Enron since 1980s, internal auditing since 1990s. The long-term cooperation between Arthur Andersen and Enron blurred the lines between external auditor and the company under auditing. Many accountants of Enron were ex-employees of Arthur Andersen. The close relation between the Arthur Andersen and Enron led to theShow MoreRelatedThe Importance of External Auditor’s Independence Essay1614 Words   |  7 PagesThe Importance of External Auditor’s Independence According to Gillespie, Lewis and Hamilton (2004:221) an audit is: â€Å"a scrutiny of the accounts by a qualified auditor who carries out checks on the figures so as to establish whether the accounts show a true and fair view of the results and the financial position of the entity.† According to Wikipedia (2011a), auditor independence refers to â€Å"an attitude of mind characterized by integrity and an objective approach to the audit process†. IndependentRead MoreWhy Is It Important for External Auditors to Be Independent? Relate Your Answer to the Primary Role of External Auditors. Give Examples of Specific Ways the Lack of Auditor Independence May Impact Adversely on an Audit.1648 Words   |  7 PagesLent Term: Individual Coursework Essay Topic: Why is it important for external auditors to be independent? Relate your answer to the primary role of external auditors. Give examples of specific ways the lack of auditor independence may impact adversely on an audit. In 2001, there was an event that had shaken the whole business world. The crash of Enron in US, followed by worldwide collapse of its auditor, Arthur Andersen. It was a greatest corporate failure uncovered in businessRead MoreWhy is it important for the external auditor to be independent?1495 Words   |  6 Pagesï » ¿Why is it important for external auditor to be independent? Throughout the years, banks, shareholders, possible investors and creditors always relied on the financial statements produced by a company. 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This concept requires the auditor  to carry his work freely and in an objective manner. The purpose of an audit to enhance the credibilityRead MoreWhy Is It Important for External Auditors to Be Independent? Relate Your Answer to the Primary Role of External Auditors. Give Examples of Specific Ways the Lack of Auditor Independence May Impact Adversely on an Audit.1638 Words   |  7 PagesIndividual Coursework Essay Topic: Why is it important for external auditors to be independent? Relate your answer to the primary role of external auditors. Give examples of specific ways the lack of auditor independence may impact adversely on an audit. In 2001, there was an event that had shaken the whole business world. The crash of Enron in US, followed by worldwide collapse of its auditor, Arthur Andersen. 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The recent financial crises and audit failures have caused the profession to reassess and emphasise the importance of skepticism during an audit engagement, ensuring that auditors increase their level of skepticism (Fullerton and Durtschi, 2012). Auditors are now asked to expand their skeptical perspective to the levelRead MoreAuditing as a profession as evolved drastically over decades and as time has passed auditing1000 Words   |  4 PagesInstitute of Internal Auditors define internal auditing as ‘†Ã¢â‚¬ ¦an independent, objective assurance and consulting activity designed to add value and improve an organisations operations. It helps an organisation accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governan ce processes.’ (Institute of Internal Auditors, 2013) Through this definition it can be explained why auditors can be seen as the ‘eyes