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Ex eternal auditor must be independent in accordance to many rules ,such as governmental rules, professional ethics policies.
*Independence requires integrity and an objective approach to the audit process.
*Independence of external auditor means independence from parties that have an inetrest in the results published in financial statements
The external auditor must be independent of the company and its board of directors, and may not be a partner or agent of one of the founders or a member of its board of directors or close to the fourth degree.During the period of his / her audit, the external auditor shall be prohibited from carrying out any additional technical, administrative or advisory services or works related to his work which may affect his decisions and independence.
AU section of the American Institute of Certified Public Accountants (AICPA) states that for auditor independence the auditor "must be without bias with respect to the client since otherwise he [or she] would lack that impartiality necessary for the dependability of his [or her] findings, however excellent his [or her] technical proficiency may be."The International Federation of Accountants (IFAC) provides a framework of principles that members of assurance teams, firms and network firms should use to identify threats to independence, evaluate the significance of those threats, and, if the threats are other than clearly insignificant, identify and apply safeguards to eliminate the threats or reduce them to an acceptable level, such that independence of mind and independence in appearance are not compromised.In situations when no safeguards are available to reduce the threat to an acceptable level, the only possible actions are to eliminate the activities or interest creating the threat, or to refuse to accept or continue the assurance engagement.In the US context independency is governed by the SEC, PCAOB and AICPA.In the case of Enron collapse in, auditor’s independence was violated and Arthur and Anderson fell along with its client, leaving us with only big four audit firms, 'the big four', rather than five, as previously.
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Independence is the cornerstone of auditing. The auditor must be independent and also seen to be independent. He or she must be independent in mind and independent in appearance. The auditor must avoid all activities that might lead a reasonable person think otherwise regarding the Independence of the auditor.eg receiving gifts or bribes without Independence the people will have no confidence in the audit report issued by the auditor.