The utility of independence in preventing audit failure
| Date | 01 January 2003 |
| Published date | 01 January 2003 |
| DOI | https://doi.org/10.1108/13685200310809464 |
| Pages | 88-93 |
| Author | Mohammed B. Hemraj |
| Subject Matter | Accounting & finance |
Journal of Money Laundering Control Ð Vol. 6 No. 1
The Utility of Independence in Preventing
Audit Failure
Mohammed B. Hemraj
INTRODUCTION
Recent corporate scandals have put audit, an estab-
lished institution, `under great stress' with no easy
instant solutions and with so much at stake. Audit
failure has meant that the accounting profession is
confronted with a crisis of con®dence and credibility.
Criticism of the profession is widespread and harsh in
the changing economic, social and regulatory climate
in which the profession at present functions. Reforms
are needed to grapple with shifting moral and ethical
norms.
1
This paper will focus on independence as an
essential component in preventing audit failures (one
of the elements of professional ethics) and will analyse
why the audit profession needs to maintain indepen-
dence and objectivity and at the same time improve
the quality of services provided; the regulations
need to ensure that this is maintained.
THE CODE OF PROFESSIONAL
CONDUCT
The term `independence' brie¯y put means `an
expression of professional integrity of the individual'
2
which requires `avoidance of the situation which
would tend to impair objectivity or permit personal
bias to in¯uence delicate judgment.'
3
The Code of
Professional Conduct, formulated by the Accoun-
tancy Body from time to time, has to ensure appro-
priate behaviour and enhance the quality of services
that members provide to the public, especially
when the audit service is perceived as serving the
public interest. Public demand has led to the provi-
sion of an increased array of services and products.
No doubt the training and knowledge of the
accounting profession uniquely quali®es its practi-
tioners to respond to public need, but this has led to
a widening gap between expectations and perfor-
mance level, followed by criticism from the public,
media, MPs and US state legislatures.
The whole notion of professionalism is that the
professional has greater experience, ability or famil-
iarity with a certain area than has a client. The ethical
principle demands that the professional should not
subordinate his judgment to the judgment of the
client from a desire to make a client happy. A
primary concern is that the client will receive the
best professional advice and service the accountant
can provide.
INDEPENDENCE AS A CRUCIAL
CONCEPT
Is the audit profession facing a crisis of public
con®dence? Many of the charges levelled against
the profession, according to a commentator, are
exaggerated.
4
The Code of Professional Ethics does
not seem to perform well in a turbulent environment,
such as a recession, nor does it suciently in¯uence
how professional services are marketed and rendered.
Also, where companies which have been given an
unquali®ed audit report which still has not prevented
their collapse, this suggests the amount of audit work
performed by an auditor does not meet the profes-
sional standard or the public's expectations.
Burger considers independence to be a crucial con-
cept that sets auditors apart from the accountancy
profession, as their core mission is to certify the
public reports that describe companies' ®nancial
status Ð an exclusive function performed by auditors
for society.
5
By expressing an opinion, the indepen-
dent auditor assumes a public duty. The function of
`public watchdog' demands that the auditor sub-
ordinates responsibility towards the client in order
to maintain complete ®delity to the public trust.
The peril in the lack of independence is that the share-
holder as a class who reads and relies upon the ®nan-
cial statements upon which the auditor has rendered
an opinion to its detriment has a cause of action
against the auditor.
6
To serve such a class of persons
an auditor needs to take an unbiased viewpoint
when performing audit tests, evaluating the results
therein, and issuing an audit report and opinion
with respect to ®nancial statements.
DRAFT RULES ON ETHICS
Traditionally accountants viewed independence on
three ethical planes, namely: (a) auditors must possess
Page 88
Journalof Money Laundering Control
Vol.6, No. 1, 2002, pp. 88 ±93
#HenryStewart Publications
ISSN1368-5201
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