Importance of Independent Audiors
Importance of Independent Auditors
An audit is a process carried out by qualified auditors whereby the financial records of business entity are precisely scrutinised in order to evaluate the accuracy of the financial statements, search for any errors or fraud and ensure that the operations are in compliance with the accounting rules. Companies usually hire external auditors who are independent to provide unbiased auditing reports of the companies’ financial condition in terms of efficiency and accuracy to management or other interested parties. It is important for external auditors to be independent as it is believed that the audit provided by a neutral third party is more effective, reliable and credible compared with internal auditors as there is not mutual benefit between an auditor and his clients. The fairness of an audit depends on whether the auditor independence is “in fact” or “in appearance”. However, it is also believed that the lack of auditor independence may negatively impact on the audit.
Expressing opinion about whether the financial records of business entity are free of misstatement and provide an unbiased report is the primary role for the auditor. The independence of the external auditor may help to fulfil that primary role as it could increase the credibility of the auditing process, ensure reliability of the audit report and increase effectiveness of the investigation of the process. Therefore, being independent for an external auditor is crucial as potential benefits may be generated among the above three aspects which would be discussed as followed.
The process of auditing not only includes evaluation of accuracy of the financial statements but also provides recommendations for future improvement. Once the problems have been detected before becoming serious and significant, an external auditor would provide advices for improvement and direct business to the right track. The initial aim of an auditor is to find mistakes (investigation) and come up with measures (advices or recommendations) to minimise or correct them. It is believed that an independent auditor would be effective during the investigation process. Since an independent auditor is not affiliated with his clients and holds neutral attitude during an auditing process, he would be more objective when investigating the financial records which may improve the effectiveness, whereas an internal auditor’s fairness may be affected by the pressure from his employer company. As a result of not being independent, the objectivity would be doubted at the origin of the investigation and the users of the audit report may not get an unbiased and constructive advice. Thus, the independence of auditing may encourage the building of constructive advices and be effective at the investigation process.
The importance of independent auditing could be also embodied in the aspect