Auditing Practice Reporting 2022

Running head: AUDITING PRACTICE
Auditing Practice
Name of the Student
Name of the University
Author’s Note

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Table of Contents
Introduction................................................................................................................................2
Independence Defined................................................................................................................2
Importance and Ramification of Independence.........................................................................3
Importance of Independence..................................................................................................3
Ramification of Independence...............................................................................................4
Justification of Bank..................................................................................................................4
Who is to Blame?.......................................................................................................................6
Policies for Improving Independence........................................................................................7
Conclusion..................................................................................................................................8
References..................................................................................................................................9

2AUDITING PRACTICE
Introduction
Auditor’s independence is considered as a crucial aspect in the auditing profession as
it has a major role to play in providing quality audit (Tepalagul and Lin 2015). Auditor’s
independence has a major importance in the profession as the obligation on the auditors is to
comply with the required rules and regulations associated with audit independence as there
are serious consequences for the auditors in case they fail in maintaining independence in
audit engagement. There are many aspects that the auditors are needed to consider for
maintain the appropriate level of audit independence and one of these aspects is non-audit
services. There are numerous instances where the delivery of non-audit services contributed
to the violation of auditor’s independence through developing threats to the same (Zhang,
Hay and Holm 2016). The main aim of this report is to discuss about auditor’s indepdence
and the ramifications of the auditors for not being independent in the profession. Moreover,
this report also involves in discussing the audit independence issues arising from providing
non-audit services to one of the Big Banks in Australia.
Independence Defined
Auditor’s indepdence is considered as the independence of the external auditors;
integrity and objectivity approach to the audit engagement characterize auditor independence.
In accordance with the concept of auditor independence, the auditors are required to carry out
his or her audit work spontaneously and in the most objective manner. Most importantly, it is
required for an auditor to be independent from the entity he/she is auditing (icaew.com 2020).
To maintain the auditor independence is seen as a strict necessity in most regulatory and legal
forms of the profession. Lack of auditor independence can contribute to audit failure along
with business failure as there are many examples such as Enron collapse, WorldCom collapse

3AUDITING PRACTICE
and where the audit fir, Arthur Andersen failed in maintain the required independence in
audit.
There are certain aspects that the auditors need to be mindful of throughout the
auditor and client relationship in order to maintain indepdence; they are as follows:
 Situations of conflict of interest such as the delivery of certain non-audit services,
specific relationship between the auditors and clients;
 Rotation of auditors in certain limited circumstances; and
 Diligence of the auditors at the time of identifying and evaluating the threats to audit
independence and applying correct safeguards (asic.gov.au 2020).
At the time of the audit or review of the financial statements, the auditors are required to
provide a written declaration in order to confirm the fact that the auditors have not
contravened the requirements of auditor independence or applicable code of professional
conduct associated with the same.
Importance and Ramification of Independence
Importance of Independence
It is needed for the auditors to be independent from the client in order to provide an
unbiased audit opinion not influenced by the auditor-client relationship. It is expected that the
auditors will provide unbiased and honest professional opinion to the shareholders on the
financial statements. However, sometimes there are doubts associated with the auditor
indepdence. It can be argued that an auditor can issue heavily influenced audit opinion for
maintaining good relationship with the client in case there is not an effective corporate
governance mechanism (Herath and Pradier2018). In case this occurs, the auditor cannot be
considered as independent while the shareholders cannot rely on the issued audit opinion.
There are many instances where the auditors engage in providing non-audit services to the