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BUS707 Literature Review on The theory of Auditor’s Independence

   

Added on  2020-05-28

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Running head: LITERATURE REVIEWLiterature ReviewUniversity NameStudent NameAuthors’ Note
BUS707 Literature Review on The theory of Auditor’s Independence_1

LITERATURE REVIEW1Literature Review The theory of Auditor’s independence as stated by Roy (2015) refers to the keystoneof theprofession of auditing because it is the basis of trust of the stakeholders and the publicin thefield of accounting. Since the year of 2000, an upsurge of high-profilescandals andfrauds in accountinghave been witnessed that cast the profession into the limelight,negatively impacting the public perception of auditor’s independence.The objective of auditing process is to develop the financial statement’scredibilitywith the help of providing written sensible guarantee from a source that independent that thestatements of the company that is presented in the reports are true and fair and is inaccordance with the standards of accounting (Tepalagul and Lin 2015). The auditor checkswhether the statements have been influenced by other parties or not, especially by themanagers or directors for their own interests. Additionally, the audit process gives totechnical competence, independence of the auditor is the most necessary element in theestablishment of the audit opinion credibility.As identified by Vanasco (1994) the auditor’s independence takes place bothinternally and externally. He has said that the auditor’s independence that internally takesplace refers to the independence from the parties who are associated directly with thebusiness and whose interests might be harmed by the result of audit. The particular issues thatare attached with the in internal audit process are inadequateinternal controls, inadequateriskmanagement and poorgovernance within the organisation (Roy 2015). There aretheAuditCharter and the reporting committee who are generally the body in the organisationwho provides the independence to the auditors from the company’s management, there is alsothecode of ethicswithin the organization that guides the auditor independence from the thirdparties.
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LITERATURE REVIEW2When it comes to external independence of the auditor as said by Page and Spira(2005), it means the self-reliability from parties that have external importance in the resultsthat are reported infinancial statements of the organization. In this regard there is the AuditCommittee supportand the public standards of accounting that gives managementindependence. The reputation of the organisation depends on the external auditing process asthe company’s performance are represented through the report that are verified by the auditor.To sum up Auditor independenceas a whole as said by Mutchler (2003) it refers totheinternal assessor independenceor of theexternal assessorfrom parties who have amonetary interest in the business being assessor. The process of freedom needsanobjectivemethodology and integrityinthe audit process. This concept needs theassessorto carry outtheir job in an objective manner without any hindrance.The auditor’s independence is a standard of auditing that is necessary as the assessorenhances his credibility as well as justification to the financial declaration even at the timewhen there are not at all substantial omissions or misstatements in the pecuniary declarationsset by the organisation. Gay, Schelluch & Reid (1997) is of view that if the assessor is notself-governing of organization, the judgement of the same in the audit report would lose itsvalue. The potential financiers, firm’s shareholders, agencies of different governing bodies,bankers and many others are troubled and get affected by the company’s pecuniaryassertions. Essentially, these circumstances can easily come into the conclusion that thereport is manipulated. Moreover the audit may not efficiently do this job accurately and canpresent an incorrect audit report.As per Bernard & Graham (1994) has presented the theory of assessor’s self-governance in three different ways:
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