A research conducted by Haim Falk, Bernadette Lynn, Stuart mestelman and Mohamed Shehata (1999)(Auditor independence, self-interested behavior and ethics) indicates that independence judgments are significantly influenced by factors relating to penalty. For instance, when managers want to attract potential employees from different generations, they should note that different generations uses different recruitment channels and may be attracted by different type of brands. Interpersonal relationships might cause the auditor to favor personal over professional objectives and also might affect the auditor's ability to exercise an appropriate level of professional skepticism (Johnstone, K.M., M.H. Intimidation threat is one of five independence threats that are explicitly referenced in the IFAC’s independence framework. It encompasses all threats to and organization’s goals and objectives. An individual’s attitude toward sanctions, which varies across individuals, may affect judgments when sanctions are present. Public trust begins, and ends, with the integrity of the numbers the public uses to form the basis for making their investment decisions. (Duska R, 2005) Found that the role of an independent auditor is to be a watchdog to see if the company’s estimates are reasonable based on the evidence that is provided on a consistent basis, as independent auditors are essential for functioning of the economic system. In this industry; business ethics and standards normally differ in relation to the environment and time the services are being offered (Joseph Weiss, 2008, Pg, 78).This creates about of challenges the mangers have to deal with to keep in line with the required ethical principles as they try to make profit. . As expressed by Bartlett, (1993) audit independence refers to an unbiased mental attitude in making decisions throughout the audit and financial reporting that without independence, audit has no value (Power, 1997), as the result, auditor should maintain independent and exists to professional ethics, but current audit environment changing very rapidly, increased many force on the audit independence. A blanket prohibition o… This hinders the auditor from making independent evaluations and conclusions. On average, subjects with low moral development scores violate independence more frequently than those who have higher scores. Auditors with a higher level of moral reasoning are more likely to reveal audit finding which management does not wish to be revealed regardless of reprisal. The existence of a penalty is more likely to affect the decision to increase the likelihood to behave ethically than unethically (whether the choice is ‘ideal’ or ‘actual’). Pany and Whittinton (1997), Gupta(1999), ICAN (1999), ISB (2000), (Myring and Bloom, 2003), Aquaisua (2004) and Okolie (2007) identify some of these threats which include undue dependence on a client; overdue fees; actions or threatened litigations; family or other personal relationships; beneficial interesting shares and other investments; beneficial interests in trusts, loans, voting on audit appointments; acceptance of goods and services as gifts or hospitality; and provision of other services to audit clients. Essay on Auditor Independence - 2 Introduction Independence is a fundamental to the reliability of auditors’ reports. Human being will speak the truth unless there is sufficient to be gained by being dishonest’. Kant believeе that when such rules are adhered to, no malpractice is bound to occur. Sweeney & Roberts (1997) found that auditors at lower levels of moral development were more likely to comply absolutely with independence standards, while auditors at higher levels of moral development were less likely to resolve an independence dilemma by referring solely to technical standards. . Auditors are expected to provide an unbiased opinion on the work that they have performed. There are many performance measures given but to identify the appropriate performance measure for the analysis of supply chain might be a challenge for the organization (Anant Deshpande, This implies static guidance is, best case scenario brief, however most times is essentially inconsistent with the very way of business itself.More research combined with more noteworthy backing for best practice hypothesis is required Another threat to auditor independence is self-interest. This is a threat to objectivity and independence. According to Johnstone (2001) independence risk is defined as the risk that an auditor's independence may be compromised or may be perceived to be compromised. It is relatively attractive as a mechanism as it is a very visible indication of independence. "At the heart of the audit profession is a belief about human nature. Reference 7 If the firm has a genuine fee-for-service model in place, Ms Banton said it may be possible to reduce the independence threats accordingly, but potentially it could still inappropriately influence the auditor ’ s judgement. 2. This objective is to improve life by setting up intermediaries to make exchange more efficient, (Duska R, 2005). Codes of ethics are normally designed to motivate members of professional organisations to operate in an ethical manner. The association's reasonability is that delegates should be doing the kind of work they have to do." Some of the suggested safeguards have already been implemented in many countries including Mauritius, such as restriction on other services, rotation of auditors and user education. People are taught the professional behavior; integrity, objectivity and independence. Rampton presented both opinions about procrastination and why we procrastinate supporting that it is not bad. If accounting is the language of business it is the auditor’s job to see the language is used properly so that relevant material is communicated properly, (Duska R, 2005). The issue of auditor’s independence has always been an important public concern and a matter of many debates, especially because of the fiduciary role played by the auditors in modern society. Literature Review: The Threats Of Auditor Independence 1590 Words7 Pages Auditor independence has come into discussion over the decade for numerous reasons. 2001. That is the individual places self-interest well above the common interests of society and is sensitive to penalty attributes. deontology, whereby some actions are deemed morally obligatory regardless of their actions. For us, however, the optimal legal regulation of auditor independence requires a more textured Likewise, audit managers who perceive audit partners to value efficiency as compared to effectiveness may rely on questionable work by an internal auditor to a greater extent (Gramling 1999) and engage in less skeptical behaviors during audit testing (Brown et al. He states that attracting and retaining high-quality people to the auditing profession is vital. Threats to Independence But have regulatory framework and education been able to instill complete independent (both in fact and in appearance) in the work of auditor? Warfield. AUDITOR INDEPENDENCE Audit is the process of evaluating a set of financial ments, processes, systems to comment on the vera and authenti of the same, that the books of accounts represent a true and fair view of state of affairs an enterprise. The quality of auditor judgments has been found to be adversely impacted by the perceived risk of client loss (e.g., Farmer et al. According to IBS (Independence Standards Board, 2000) the threats to auditor’s independence are the sources of possible bias that may compromise, an auditor’s ability to make unbiased audit performance. Stakeholders and regulators due to their concerns for the audit quality have criticized the auditing profession. If an auditor is exposed to a certain threat, he or she should either develop safeguards to reduce the threat to an acceptable level or resign from the audit engagement. In addition the audit process is seen to be unobservable to third parties, while audit risk is fundamental to the audit process as auditors cannot and do not attempt to check all transactions. While auditor at post-conventional level judgment will not be affected by nature or severity of sanction. [But] the willingness of investors to continue to invest … cannot be taken for granted. Auditor independence may be affected by threats and intimidation posed to the auditor by either the client or any stakeholders in the audit process. This can arise when issues emerge at a late stage, either as a result of audit procedures or from events within the company. Here the auditor reviews a judgement she has taken herself. Threats to Independence The threats to audit independence arises from the following sources : Self-interest threats occur when the financial interest of the auditor and his relatives are involved. For example, managers will try to influence auditors into omitting or modifying conclusions that they regard as damaging or into ignoring high-risk areas of the operation. However, Peter Wyman ("Is Auditor Independence Really the Solution?," April 2004) makes an important contribution to this discussion, about being full independent by emphasizing that auditor independence is an enabler of good auditing, and that to view it as an end in itself could have severe adverse consequences. •To recognize that previous academic studies have influenced profession in the preparation of ethical guidance. •To critically evaluate Codes of Ethics issued by IFAC and APB, and suggest further ways in which auditor independence could be strengthened. Alternatively, auditors may become too trusting of management representations and, thus, insufficiently rigorous in their audit testing. Ethics have been observed to play a key part in the work of auditors. Independence "in fact" (or actual independence) and "in appearance" (or perceived independence) is two types of auditor independence. -To determine the factors associated with the decision-making process of an auditor; ethical, moral and independence in judgment-base decisions. Where little or no judgment is required in certain circumstances is unlikely that incentives to compromise independence will result in reduced audit quality. Gupta (1999) and Okolie (2007) also agree that one of the most effective safeguards is the rotation of auditors. Based on individual’s ethical development which influences judgment and work, Kohlberg (1958) defined ethical development as the ‘Cognitive Moral Development’ (CMD) of the individual, governing the thought and knowledge processes involved in deciding about what is right or wrong. So, recognizing the difference between interests and incentives of different generations and related business results can be considered as an important component in the development of effective recruitment tools, training methods, processes, employment and employee benefits packages (Leschinsky & Michael, 2004). Familiarity Threat. In Mauritius, scarce literature is available on the perception of the threats that impair auditor independence and safeguarding it. Other authors Sweeney and Roberts’ (1997) research show the same result as Ponemon and Gabhart. trust or familiarity threats: this arises from auditors becoming over-influenced by the personality and qualities of their clients’ directors and/or senior managers and consequently too sympathetic to their interest. The literature shows that there are several situations that can potentially threaten auditor independence. In large firms, this threat can be addressed by separating the accounting and auditing work between two distinct teams or partners that operate independently of each other. . (APB, 1996). The report classifies this as political pressure, something that the authors describe as 'extensive and pe… Before an audit engagement, it is crucial that each member of the audit team review the five threats to independence. auditing standards, prohibitions, disclosure requirements, ethical guidelines, oversight and enforcement, etc; safeguards within the firm which can be firm-wide or engagement specific, e.g. Indirect incentives arise from other circumstances that could make it difficult for the auditor to maintain objectivity. Thus companies give importance to customer and try to build long term relationship so that every customer will add revenue to the organization. International Financial Reporting Standards. Image restoration 4 However, if all the auditors were truly independent the subject would not find such a prominent place in the code of conduct of every professional institute of the world. This is reflected in the fundamental principle of auditing- Objectivity and Independence- which states: "Auditors are objective. However, it is possible to identify some threats to auditors’ independence. For example, settings in which there might be a high degree of judgment include deciding on the appropriateness of a client’s revenue recognition policy or judging the adequacy of a client’s allowance for doubtful accounts. There is familiarity threat if the auditor has a close relationship to or too familiar … But in one way or the other auditor independence is threatened. 2.2 Independence of mind and independence in appearance. This essay is concerned with the pros and cons of auditor independence and describes the way to the current audit regulation. Right when the organisation was encountering great cash related difficulties, the staff were prepared to offer their own things and use their own cards(credit or debit) to purchase fuel to pass on the packs to the customers. Many firms which operate in an intensely competitive environment may have difficulty remaining independent as the client can easily acquire services of another auditor. . . Auditor independence has long been regarded as a cornerstone of the auditing profession (AICPA 1999; SEC 2000). Introduction It. These incentives also arise when auditors audit their own work, including financial statements they prepared, valuations they recommended for financial statement items such as in-process research and development, outsourced internal audit services they did, and management decisions they advised on. Viewing it at an angle of an identified risk, the threat may or may not be significant when it comes to impairing the independence of a given auditor. 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