An audit can be considered a highly important process during the company’s fiscal year. The organizations should take the audit process seriously because of its high level of dependence on other relevant stakeholders involved in the accounting process.
Therefore, organizations try to outsource their audit process to reputed 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 to deliver the best possible results.
This requires them to adapt their professional integrity, along with professional skepticism, to give an accurate opinion about the company’s financial statements.
It is also important for them to realize how crucial it is for the auditor to be independent and effectively execute the process. There are numerous different reasons why auditor independence tends to be pivotal for the audit process.
Why is Auditor Independence Important?
Over the audit, which includes audit plans and procedures, auditors need to ensure that they approach the process with a curious mind.
In this regard, they need to stay open to fraud and improper reporting possibilities that can deliver the required results.
Auditor independence tends to be an essential component across the audit process because it directly influences the auditor’s judgment.
Auditor independence 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, when the auditor cannot adopt an independent approach towards the audit process, the statement 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 if 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 auditor has checked upon the financial statements and other relevant information.
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 provide 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, to keep the interests of the shareholders and investors intact, auditors need to maintain an independent approach. It also adds to their credibility and reputation in the future.
This is because if 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, they need 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 the auditors issue. If their judgment is impaired, they might not be able to give a free and a fair few, which would result in bigger damage to the overall ecosystem in the longer run.
Therefore, all steps should be taken by the engagement partners and the auditors to ensure that no event hampers the ability of the auditors to give a free and fair view regarding the company’s financial statements. 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.