Auditor independence

Auditor independence – meaning independence of both the firm engaged to perform external audits and the individual auditors who conduct the audits – is a central facet of external auditing. Aside from the contractual and financial relationship between an organization and its external auditors, maintaining the independence of external auditors is a strict requirement in most legal and regulatory forms of auditing, especially when the subject organization is a publicly traded entity [ScienceDirect]. To be independent, an auditor must not have a vested interest in the audit's outcome; for the auditor, nothing hinges on the conclusion. The ability to decide on the best approach and implement it and have free access to any necessary materials is important. Furthermore, auditors must be free to write up their findings in full detail without an obligation to conceal or obscure information. One barrier to auditor independence is that auditors are paid by the people they are auditing in most cases. This can interfere with objectivity, especially for a big, repeat client. A lousy audit might lead the company to stop using that auditor or could force a company out of business, and there is a clear disincentive for auditors to cut off available sources of income. This might lead an auditor to be less than honorable in the investigation and reporting process. Requiring auditors to have numerous income sources can help with this problem by ensuring that the loss of a client will not cause an auditing firm to collapse [SmartCapitalMind].

Sources:

Gantz, S. (2014). Independence in external auditing. ScienceDirect. Retrieved from: https://www.sciencedirect.com/topics/computer-science/auditor-independence

MacMahon, M. (2023). What is Auditor Independence? SmartCapitalMind. Retrieved from: https://www.smartcapitalmind.com/what-is-auditor-independence.htm