Financial Analysis & Auditor Independence Report - Finance Course

This report provides a financial analysis focusing on auditor independence, highlighting potential threats such as self-interest and internal control issues. It emphasizes the importance of auditor integrity and adherence to ethical codes to ensure unbiased financial reporting. The analysis considers a scenario where a company offers incentives to auditors, potentially compromising their objectivity. The report underscores the necessity for auditors to resist undue influence and maintain their commitment to providing genuine opinions on a company's financial affairs, referencing relevant literature on accountability and financial accounting standards. Desklib provides access to this and similar documents for students.

Financial Analysis
2018

1
By student name
Professor
University
Date: May 12 , 2018.
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Contents
Introduction………………………………………………………………….....................................................3
Analysis………………………………………………………………………………………………………………..……….…4
References.....……………………………………………………………............................................................9
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Introduction
Independence refers to the independence of the auditors of the company from parties that might be
having any financial interest in the company. It also refers to the independence of the auditor in which
the auditor is having no prejudicial interest in the company. It is important to hold on integrity and have
a proper approach to the audit of the company. Auditors have been given major responsibility to check
whether the company is true to its affairs or not, if the auditor fails to give an unbiased opinion, it will
end up harming the company and provide a wrong picture to the people who are dependent on the
company. There are various risk elements that are associated with the auditors of the company and it is
important that the auditors should try to element them as much as possible (Alexander, 2016). It is also
important for the management of the company to see that none of their activities are prejudicial to the
integrity of the auditors. The auditors need to follow a code of ethics that asks them to hold their
ground in such situations and never give on their commitment to serve the company in the best ways
possible.
Situation 2
In situation 2 there are certain aspects that might cause threat to the independence of the auditor.
Self Interest Threat
The company is offering a free trip to Europe to the member of the audit team, so that might lead to a
situation where the auditor might for self-interest end up acting as per the recommendations of the
management of the company and fails to provide a genuine report on the company’s affair. So that
would cause a negative interest on the auditor’s interest as the auditor might end up having prejudicial
interest in the affairs of the company.
Internal Control Threat
One thing that is very much apparent in this case that the CEO is having a lot of control on the affairs of
the company with respect to the audit conducted, because they have withheld the audit fees of the
previous auditor and said that the scrutiny of the auditors would be conducted for the coming year, so
this might end up auditor acting as per the management of the company, as the audit firm consists of
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the 40 percent of the total fees from the company. Thus, the auditor might be forced to act as per the
management of the company (Chron, 2017).
These threats might affect the overall independence in a way that even though the company is not
following the accounting standards and principles the auditor might not be able to state this is his audit
report as his own personal interest and those of the firm might end up affecting its integrity (Maynard,
2017). Thus, what is important that the auditor should hold his ground in such situations and never let
the company or the management influence his decision by offering him any kind of monetary or benefits
in kind. This will help in giving a genuine opinion on the company.
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References
Alexander, F., 2016. The Changing Face of Accountability. The Journal of Higher Education, 71(4), pp.
411-431.
Chron, 2017. five-common-features-internal-control-system-business. [Online]
Available at: http://smallbusiness.chron.com/five-common-features-internal-control-system-business-
430.html
[Accessed 07 december 2017].
Maynard, J., 2017. Financial accounting reporting and analysis. second ed. United Kingdom: Oxford
University Press.
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