本文发表在 rolia.net 枫下论坛Question 2：
Auditor independence has been a key issue for many years. Requiring the highest levels of independence is seen as a way of ensuring that auditors are not motivated to let clients get away with questionable financial reporting. It is argued that auditor independence supports higher quality audits and deters clients from aggressive earnings management and fraudulent financial reporting. Some research indicates, however, that the stringent independence standards currently in place for auditors actually result in less effective audits as measured by higher audit risk, since auditors do not know their clients as well as they did when they were also acting as consultants.
Required
Evaluate both points of view, commenting on and critiquing each side from the perspectives of the auditor, the client, and the public. Decide which viewpoint has the most merit, and defend your position. In addition to the readings related to independence in your module notes, read The Cost of Auditor Independence, from the CFO.com website.
Allocation of marks:
• 2 marks are awarded for each valid and well-developed point, to a maximum of 4 marks per point of view/perspective combination and a maximum of 16 marks overall.
• 2 marks are awarded for a valid conclusion in support of either position.
• 4 marks are awarded for providing a convincing rationale that is consistent with the analysis.
如果大家不介意的话，以下是我的答案，如果占用到大家宝贵的时间，我表示非常抱歉。
还有就是，grader是按promote, detract来判分的，而题目自身，AU2 reading book和module notes都没提过promote detract，看得我有些懵。
The two arguments on effectiveness of independence of audit are based on the perspectives from different parties: the public and clients (auditees). From public’s perspective, independence can provide quality audits and detect earnings managements. From clients’ (auditees’) perspective, independence costs tons due to SOX, which is not cost efficiency as per the perspective of the article “The Cost of Auditor Independence”; as well, auditor’s overall understanding of auditee’s business is not as well as those whom are also performed as consultant. However, I agree that independence is critical and crucial for auditors to objectively performing effective auditing work. The reasons are:
Firstly, independence is crucial for investors to gather reliable and objective information for decision making. The three-party accountability relationship requires auditor to act public interest, which by lending credibility to financial statements to reduce information asymmetry between the clients and public. Nevertheless, client (auditee) has motivations to provide an overly optimistic picture of the business for attracting more investors, public is the disadvantageous party that does not have easy access and difficult to assess complex and quantity of data. Therefore, independence is crucial for auditors to protect public interest by providing reliable audited financial statement to eliminate potential conflict of interests between client and public.
Secondly, independence is critical for auditors to apply professional skepticism and professional judgment impartially. In real practice, client is the party that pays audit fees, as well as the party that usually works and liaisons with auditors. Thus, a close friendship may be established between auditees and auditors. Although the relationships are among personals, the friendship could more or less influence auditors to maintain professional skepticism and judgment at an appropriate level, for example, auditors may be too lenient with clients and/or too accepting of management’s work. Therefore, independence is critical for the processing audits impartially. [grader's comment: keeping their distance detracts from auditor’s ability to identify risk areas]
Thirdly, independence requires auditors keep away from independence threats. There are five independence threats: self-interest threats, self-review threats, advocacy threats, familiarity threats, and intimidation threats. Among these threats, self-review and familiarity threats are the most possible outcome threats that would impair auditor independence if the auditor performs consulting work at the same time for the same entity. The failure of Enron is the real example that auditors provide both audit services and consulting services, and caused the collapse of Enron. Even though, the new regulation SOX cost auditees extra fees for auditing financial statements, it protects auditees’ business from long-rum, as well as protects public’s interest.
Fourthly, in engaging with non-listed or small business entities, auditors is not prohibited from providing both auditing and consulting services if the independence is not impaired as per CGA professional standards. By which means, clients saves fees for hiring an auditor who could also provides consulting services, but the auditor must meet independence test, which requires auditor to be independence in mind and in appearance. At any time if the threat of independence is clearly significant, auditors must apply appropriate and adequate safeguards to maintain independence at an acceptable level. However, at any time the safeguard does not exist, the auditor should resign from the auditing activities. Therefore, independence is a key to approach effective auditing throughout the engagement that for forming an unbiased auditor’s opinion.
In conclusion, I agree that independence enhances the effective and trustworthy of financial statements. Although the absolute independence is hardly existed, the current independence standards which require auditors to maintain independence at appropriate level, essentially protects public interest from potential independence threat, so that auditors’ are able to apply professional skepticism and judgment impartially, to attest the auditees’ financial statements objectively (in accordance with GAAP), and finally to offer an unbiased opinion for public/users to make important decisions. On the other hand, I disagree with the perspective that current independence standards result high cost but low effective audits, since audit fees is the leverage for absorbing investments. It is better to treat “cost of auditor independence” as cost of public/users trust, since public relies on neutral, objective, impartial, and unbiased audited financial statements.
Grader's comment:
Auditor: 2 / 2 Promote 2 / 2; Detract: 0 / 2
Client: 2 / 2 Promote 2 / 2; Detract: 2 / 2
Public: 0 / 2 Promote 0 / 2; Detract: 0 / 2
MAX: 10 /16
Conclusion: Promote 2 / 2 OR Detract: / 2
Rationale: 2 / 4
Total: 14 / 22
Grader comment: question required addressing auditor, client/auditee and public perspective that promote and detract. That is not apparent in your answer. Consider organizing your answer for this type of question as a table – it is easier for you and the grader to review. The rationale provided also needs more details to support it.
Consider answering in point form – short, easier to summarize your thoughts, or review your text for spelling and grammar.更多精彩文章及讨论，请光临枫下论坛 rolia.net
Auditor independence has been a key issue for many years. Requiring the highest levels of independence is seen as a way of ensuring that auditors are not motivated to let clients get away with questionable financial reporting. It is argued that auditor independence supports higher quality audits and deters clients from aggressive earnings management and fraudulent financial reporting. Some research indicates, however, that the stringent independence standards currently in place for auditors actually result in less effective audits as measured by higher audit risk, since auditors do not know their clients as well as they did when they were also acting as consultants.
Required
Evaluate both points of view, commenting on and critiquing each side from the perspectives of the auditor, the client, and the public. Decide which viewpoint has the most merit, and defend your position. In addition to the readings related to independence in your module notes, read The Cost of Auditor Independence, from the CFO.com website.
Allocation of marks:
• 2 marks are awarded for each valid and well-developed point, to a maximum of 4 marks per point of view/perspective combination and a maximum of 16 marks overall.
• 2 marks are awarded for a valid conclusion in support of either position.
• 4 marks are awarded for providing a convincing rationale that is consistent with the analysis.
如果大家不介意的话，以下是我的答案，如果占用到大家宝贵的时间，我表示非常抱歉。
还有就是，grader是按promote, detract来判分的，而题目自身，AU2 reading book和module notes都没提过promote detract，看得我有些懵。
The two arguments on effectiveness of independence of audit are based on the perspectives from different parties: the public and clients (auditees). From public’s perspective, independence can provide quality audits and detect earnings managements. From clients’ (auditees’) perspective, independence costs tons due to SOX, which is not cost efficiency as per the perspective of the article “The Cost of Auditor Independence”; as well, auditor’s overall understanding of auditee’s business is not as well as those whom are also performed as consultant. However, I agree that independence is critical and crucial for auditors to objectively performing effective auditing work. The reasons are:
Firstly, independence is crucial for investors to gather reliable and objective information for decision making. The three-party accountability relationship requires auditor to act public interest, which by lending credibility to financial statements to reduce information asymmetry between the clients and public. Nevertheless, client (auditee) has motivations to provide an overly optimistic picture of the business for attracting more investors, public is the disadvantageous party that does not have easy access and difficult to assess complex and quantity of data. Therefore, independence is crucial for auditors to protect public interest by providing reliable audited financial statement to eliminate potential conflict of interests between client and public.
Secondly, independence is critical for auditors to apply professional skepticism and professional judgment impartially. In real practice, client is the party that pays audit fees, as well as the party that usually works and liaisons with auditors. Thus, a close friendship may be established between auditees and auditors. Although the relationships are among personals, the friendship could more or less influence auditors to maintain professional skepticism and judgment at an appropriate level, for example, auditors may be too lenient with clients and/or too accepting of management’s work. Therefore, independence is critical for the processing audits impartially. [grader's comment: keeping their distance detracts from auditor’s ability to identify risk areas]
Thirdly, independence requires auditors keep away from independence threats. There are five independence threats: self-interest threats, self-review threats, advocacy threats, familiarity threats, and intimidation threats. Among these threats, self-review and familiarity threats are the most possible outcome threats that would impair auditor independence if the auditor performs consulting work at the same time for the same entity. The failure of Enron is the real example that auditors provide both audit services and consulting services, and caused the collapse of Enron. Even though, the new regulation SOX cost auditees extra fees for auditing financial statements, it protects auditees’ business from long-rum, as well as protects public’s interest.
Fourthly, in engaging with non-listed or small business entities, auditors is not prohibited from providing both auditing and consulting services if the independence is not impaired as per CGA professional standards. By which means, clients saves fees for hiring an auditor who could also provides consulting services, but the auditor must meet independence test, which requires auditor to be independence in mind and in appearance. At any time if the threat of independence is clearly significant, auditors must apply appropriate and adequate safeguards to maintain independence at an acceptable level. However, at any time the safeguard does not exist, the auditor should resign from the auditing activities. Therefore, independence is a key to approach effective auditing throughout the engagement that for forming an unbiased auditor’s opinion.
In conclusion, I agree that independence enhances the effective and trustworthy of financial statements. Although the absolute independence is hardly existed, the current independence standards which require auditors to maintain independence at appropriate level, essentially protects public interest from potential independence threat, so that auditors’ are able to apply professional skepticism and judgment impartially, to attest the auditees’ financial statements objectively (in accordance with GAAP), and finally to offer an unbiased opinion for public/users to make important decisions. On the other hand, I disagree with the perspective that current independence standards result high cost but low effective audits, since audit fees is the leverage for absorbing investments. It is better to treat “cost of auditor independence” as cost of public/users trust, since public relies on neutral, objective, impartial, and unbiased audited financial statements.
Grader's comment:
Auditor: 2 / 2 Promote 2 / 2; Detract: 0 / 2
Client: 2 / 2 Promote 2 / 2; Detract: 2 / 2
Public: 0 / 2 Promote 0 / 2; Detract: 0 / 2
MAX: 10 /16
Conclusion: Promote 2 / 2 OR Detract: / 2
Rationale: 2 / 4
Total: 14 / 22
Grader comment: question required addressing auditor, client/auditee and public perspective that promote and detract. That is not apparent in your answer. Consider organizing your answer for this type of question as a table – it is easier for you and the grader to review. The rationale provided also needs more details to support it.
Consider answering in point form – short, easier to summarize your thoughts, or review your text for spelling and grammar.更多精彩文章及讨论，请光临枫下论坛 rolia.net