Why Is It Important for External Auditors to Be Independent?
Why is it important for external auditors to be independent? Relate your answer to the primary role of external auditors? By Zachariah Godfrey-Plews
This essay has asked me to look at the importance of external auditors and why it is vital for them to remain independent. I will try and look at the many ways of the advantages of independent auditing from different perspectives for example the company itself, the general public and the state. I think it is important to first define what an audit and an external auditor to be able to answer this question effectively. Firstly an audit is (1)“an accounting procedure under which the financial records of a company or individual are closely inspected to make sure that they are accurate.” An
…show more content…
This will keep shareholders happy as a strong balance sheet usually enables a strong share price and increased dividends payments. An example of creative accounting which can be used is what was used by a company called WorldCom. The paper USA today covered the story in a article by Matt Cranz. (3) “WorldCom used the gimmick to a level never before seen. The company showed a $1.4 billion profit in 2001,rather than a loss, by using what's essentially the oldest trick in the book. Rather than subtracting certain costs which analysts think were for maintaining telecom systems — from profit, it called them long-term investments. Doing this allowed WorldCom to inflate earnings because the costs of long-term investments are subtracted from earnings over time, rather than all at once up front.” This is an example of an audit that found out a company participating in creative accounting. It was a independent auditing firm that checked the results of WorldCom. It’s vital that the reports done are done independently because for example if the auditor participating in this investigation had shares in this company he would have almost certainly portrayed a different picture in the story because he would have almost certainly lost personal financial gain and acting in his own interests he/she would modified or altered their investigation. This can also be seen in the case if the investigator has a family relation or