Page 54 - DCOM204_AUDITING_THEORY

Auditing Theory

Notes Auditor: The auditor acts as a link between the shareholders and the management.

Independence in Appearance: The avoidance of facts and circumstances that are so significant
that a reasonable and informed third party, having knowledge of all relevant information,
including safeguards applied, would reasonably conclude a firms, or a member of the assurance
team’s, integrity, objectivity or professional skepticism had been compromised.

Independence of Mind: The state of mind that permits the provision of an opinion without being
affected by influences that compromise professional judgment, allowing an individual to act
with integrity, and exercise objectivity and professional skepticism.

Statutory auditing, mandatory for all companies, is one of the regulatory mechanisms designed
to check abuses and irregularities in the financial aspects of the companies.

3.7 Review Questions

1. Why does the distinction between improving reliability and adding credibility (enhancing
confidence in reliability) matters?
2. Why independence of an auditor is important?

3. How appearance of independence affects perceived information risk?
4. “Appearance of independence is an appropriate subject of regulation”. Justify.
5. “Objectivity can result from perfect integrity (despite impaired independence), perfect
independence (despite impaired integrity), or some adequate combination of reasonable
independence and integrity.” Elaborate the statement.
6. Why the independence of auditors as a profession must be preserved?

7. What are the duties and powers of the Comptroller and Auditor-General of India?
8. Why integrity, objectivity and independence are not mutually exclusive? Elaborate.

Answers: Self Assessment

1. Being unbiased, fair, and impartial; being intellectually honest
2. independent accountants

3. Independence
4. the user’s perception of the individual auditor’s ability to be independent in particular
unique circumstances; the general public’s view toward public accountants as a professional
group
5. Audit; accounting functions
6. statutory corporations; autonomous bodies

3.8 Further Readings

Books David Coderre, Internal Audit: Efficiency through Automation, John Wiley & Sons,
2009.
Emile Woolf, Moira Hindson, Audit and Accountancy Pitfalls: A Casebook for Practising
Accountants, Lawyers and Insurers, John Wiley & Sons, 2011.

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