An audit can be considered a highly important process during the course of the fiscal year of the company.
As a matter of fact, the audit process is supposed to be taken seriously by the organizations because of the high level of dependence it holds for other relevant stakeholders that are involved in the accounting process.
Therefore, organizations try to outsource their audit process to reputed teams of auditors who have a reputation for creating a positive outlook when it comes to different steps.
When it comes to auditors’ opinions, it can be seen that auditors are supposed to make sure that they execute the audit process in order to deliver the best possible results.
This requires them to adapt their professional integrity, along with professional skepticism, so that they can give an accurate opinion about the financial statements of the company.
In this regard, it is also important for them to realize how crucial it is for the auditor to be independent and execute the process in an effective manner.
There are numerous different reasons as to why auditor independence tends to be pivotal for the audit process, to say the least.
Why is Auditor Independence Important?
Over the course of the audit, which includes audit plans, and audit procedures, it is important for auditors to ensure that they approach the process with an inquisitive mind.
In this regard, it is important for them to stay open to possibilities of fraud, and improper reporting, that can deliver the required results.
Auditor independence tends to be an extremely important component across the audit process, because of the reason that it directly influences the judgment that is put forth by the auditor.
Auditor independence simply means the ability of the auditor to adopt an approach with integrity and objectivity within the audit process. This mainly requires the auditor to have the liberty to execute his work in a free and objective manner.
It gives him the ability to base his opinions without any biases, or external pressures. Hence, in the cases where the auditor is unable to adopt an independent approach towards the audit process, the opinion issued might not be valid, and cannot be relied upon.
Auditor independence allows the auditor to adopt an integral approach, and question anything and everything that he believes should be scrutinized within the company.
In this regard, it enables him to muster the courage to question the company, and the officials, in case something is missing in the financial statements, or something should be added on.
Additionally, there is no doubt to the fact that the Audit Report is supposed to be used by numerous stakeholders around the organization. It forms to be a very useful and concrete decision-making criterion by these stakeholders since it gives them confidence that the financial statements and other relevant information has been checked upon by the auditor.
This restores their confidence, and therefore, gives them a reason to invest in the company. In the case where the auditor independence has been compromised upon, and they are not able to give a free and fair view regarding the company, it results in investors losing their money.
Therefore, this causes them to suffer significant financial losses, because of the lack of independence of the auditor.
Therefore, in order to keep the interests of the shareholders and investors intact, it is quite important for auditors to maintain an independent approach. It also adds to their credibility and reputation in the future.
This is because in the case where they declare a clean report regarding a company, and the company then defaults, their credibility would be at stake because they had audited these financial statements in the first place.
Hence, it is vital for them to take this engagement seriously so that it does not cloud their judgment because of a lack of independence.
Auditor independence directly impacts the decision that is issued by the auditors. In the case where their judgment is impaired, they might not be able to give a free and a fair few, and therefore, this would result in bigger damage to the overall ecosystem, in the longer run.
Therefore, all steps should be taken by the engagement partners, as well as the auditors to ensure that there is no event that hampers the ability of the auditors to give a free and fair view regarding the financial statements of the company. In the case of an event where the auditor feels that their independence is at stake, they should ideally report it to their managers, so that relevant steps can be taken.