Disclaimer: This dissertation has been written by a student and is not an example of our professional work, which you can see examples of here. And auditors charged with independently reviewing a firm’s financial reports have often been found to be complicit with firm management in this effort (Levitt & Dwyer, 2002). No plagiarism, guaranteed! Why Important? The structure of the audit committee is particularly important, both in terms of independence and the skills required(Financial Markets Authority Corporate Governance in New Zealand, 2014). •Investigative independence: no legitimate source of information is closed to auditors, requiring that auditors have freedom to examine information that auditors Why independent audit committees matter? The auditor is entitled to be paid by the company reasonable fees and expenses for making the representation to shareholders (Companies Act 1993, 2018). The code is the blended of principles and rule with the heavily reliable on principles (KnowdegEquity – Support for CPA, 2015). The code of ethics has three parts where part A also establishes the fundamental principles of professional ethics for members and provides a conceptual framework for applying those principles. Anderson was auditing the company for long time. The auditors are professionals who receive a fee from client for his service so the threats to independence of judgement is unavoidable (Siegel, 2002). Auditing 1 Assignment 2. Section 12 of Auditor Regulation Act 2011 allow professional auditor who gain their qualification and experience overseas if the person meets the minimum standards required by FMA can be the member of one of the recognised body (Auditor Regulation Act 2011, 2017). This create the risk of self-review threat on the audit independence and self-interest threat as there was a fear of losing a large client which lead to failure to inform investors on Enron’s non-disclosures (Tom Campbell, 2005). Familiarity—when an auditor becomes too sympathetic to the interests of another party because of a close relationship. The auditor should always maintain an appropriate level of independence from the client to balance the duty to provide quality audit report to the shareholders and public too. If the firm find a member or staff breach the policies and procedures, the firm should first find out if the staff breach the policies and procedure because they did not know about the policies and procedures. The ethical principles for the auditors included in part A are integrity, objectivity, Professional competence and due care, confidentiality and Professional behaviour (Arens, 2013). Company Registration No: 4964706. This case made it more difficult for third parties to establish that an auditor owes them of duty of care (Robyn Moroney, 2014). Doubts are sometimes expressed regarding the independence of external auditors. • Q. There are occasions where independence of the auditors may be threatened or appear to be threated so the frameworks identify five threats to independence. Free resources to assist you with your university studies! Nevertheless, the auditor should carry out his task with an inquiring mind, investigate any suspicious circumstances to their satisfaction and if necessary, warn management about it (Mills, 1990). The client has competent employees with experience and seniority to make managerial decisions. The section 207U of the Company Act 1993 further protect the independence of the auditor by rule for replacing the qualified auditor. Opposite to this case, In Columbia Coffee & Tea Pty Ltd v. Churchill (1992) where the Judge held the decision against using the audit firm’s manual to rule that the auditor owed duty of care to the third party. Also, according to the Company Act 1993 and section 290 of the Code of Ethics, an auditor cannot have any employment relationship with the client company or related company such as director, employee, liquidator or receiver. This act really helps the users of report to understand and to get satisfied on auditor’s objectivity and effectiveness and this report also need to include the identification of threat, the mitigation factors and the safeguard used for it. Secondly, if external auditors are not independent of the firms they audit and overlook bad accounting practices; there is a relatively high chance that these corporations will become bankrupt when their “bubbles burst”. As per the FMA Act, it is the audit committee’s responsibility to deal with the complaint against the auditor or the relationship between the auditor and the management which may affect the objectivity, independence and quality of audit work. Accounting firms sometimes engage set audit fees at less than the market rate and make up for the deficit by providing non-audit services, such as management consultancy and tax advice. Although the third party who made the decision to take over the business was unknown to the auditor, was owned a duty of care as the third party was relied on the publicly filed audited financial statement of a company (Arens, 2013). The Code of Ethics for Professional Accountants is in line with the conceptual approach to auditor independence. The duty of care was not extended to other parties that are not known to auditors till the case of Candler v. Crane, Christmas & Co (1951). Doubts are sometimes expressed regarding the independence of external auditors. In BGJ Holdings case, the auditors raised the matter with other directors and senior executives by means of a letter of recommendation. Therefore, the code is primarily principle base rather than the rules base in New Zealand. The company must inform through writing to Registrar within 5 working days of the power becoming exercisable. Anderson paid the consultation fee to his former partner who was the chairman of HIH board. Most threats arise from one of the following sources: The Code identifies two broad categories of safeguards that reduce threats to an acceptable level. While appearing independent is about preserving “Independent of appearance” which is how public/users perceive auditor as being objective which is important to get users confidence over auditor’s judgement. Sign up to our email programme to hear about our latest news and service offers. This article is purely for educational purposes, with information collated from multiple news reports, journals and interviews with my CA friends. The independence of external auditors had been brought into question because of the potential influence the corporations had on its auditors. Therefore, it is extremely important for external auditors to do their jobs professionally and independently so that these problems can be avoided (Bartleby.com, 2012). The HIH board of directors included three former partners of Anderson. Pay their auditing fees parties who are likely to benefit from the client has a governance! Which can have a commercial interest too firm is the most important factor in establishing the of! Point where subsequent objectivity may be threatened or appear to be threated so the frameworks identify threats!, familiarity threat and intimidation threat ( Malane, 2005 ) auditing fees requirements for auditor to be independent financial. 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