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Unit 3: Roles and Independence of Auditor

the other hand, there may be adequate information that can be sent to the function point auditor Notes
that can be reviewed off site.

3.1 Auditor

The auditor must be a qualified to understand the criteria used and competent to know the types
and amount of evidence to accumulate to reach the proper conclusion after the evidence has
been examined. The auditor also must have an independent mental attitude. It does little good
to have a competent person who is biased performing the audit. Independence cannot be absolute
by any means, but it must be a goal.

Example: Even though an auditor may be paid a fee by a company they may still be
sufficiently independent to conduct audits that can be relied upon by users. Auditors may not be
sufficiently independent if they are also company employees.
Auditors shall conduct the audit of the financial statements of an entity with integrity, objectivity
and independence.

3.1.1 Integrity

Integrity is a prerequisite for all those who act in the public interest. It is essential that auditors
act, and are seen to act, with integrity, which requires not only honesty but a broad range of
related qualities such as fairness, candor, courage, intellectual honesty and confidentiality. It is
important that the directors and management of an audited entity can rely on the auditor to treat
the information obtained during an audit as confidential, unless they have authorised its
disclosure, unless it is already known to third parties or unless the auditor has a legal right or
duty to disclose it. Without this, there is a danger that the directors and management will fail to
disclose such information to the auditor and that the effectiveness of the audit will thereby be
impaired.

3.1.2 Objectivity

Objectivity is a state of mind that excludes bias, prejudice and compromise and that gives fair
and impartial consideration to all matters that are relevant to the task in hand, disregarding
those that are not. Objectivity requires that the auditor’s judgment is not affected by conflicts of
interest. Like integrity, objectivity is a fundamental ethical principle.
The need for auditors to be objective arises from the fact that many of the important issues
involved in the preparation of financial statements do not relate to questions of fact but rather
to questions of judgment.

For example, there are choices to be made by the board of directors in deciding on the accounting
policies to be adopted by the entity: the directors have to select the ones that they consider most
appropriate and this decision can have a material impact on the financial statements.
Furthermore, many items included in the financial statements cannot be measured with absolute
precision and certainty. In many cases, estimates have to be made and the directors may have to
choose one value from a range of possible outcomes. When exercising discretion in these areas,
the directors have regard to the applicable financial reporting framework. If the directors,
whether deliberately or inadvertently, make a biased judgment or an otherwise inappropriate
decision, the financial statements may be misstated or misleading.
It is against this background that the auditor is required to express an opinion on the financial
statements. The audit involves considering the process followed and the choices made by the

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