Auditor independence is a vital part of the assurance process, ensuring that audit findings are independent and free of interference from within the entity under audit. Auditor independence allows appointed auditors to work in an unbiased and critical manner, providing stakeholders with quality evidence or opinion on relevant matters. For financial audits, including the audit and review of financial statements, the appointed auditor is required to submit a declaration stating that auditor independence standards have not been breached and professional codes of conduct have been adhered to.
Both internal and external audit services rely on a high degree of auditor independence to be effective. Financial audits are regulated by the Australian Securities and Investments Commission, who publish resources on auditor independence. To obtain and maintain registration as an approved company auditor, an auditor must demonstrate independence from the entities they audit. Independence standards are legally enforceable, making them a pillar of audit and assurance practice that is non-negotiable.
Auditor independence relies on avoiding situations that would create a conflict of interest. For example, if a company requests that an appointed auditor provide other, non-audit services, a conflict of interest would result. Similarly, auditors cannot maintain specific relationships with members of entity under audit beyond that required as part of the audit and assurance engagement. ASIC requires auditors to notify them in writing if a conflict of interest situation arises during the audit process and does not resolve within seven days of its appearance. Auditor rotation is another way in which listed companies are required to promote auditor independence.
External audit services refer to audit and assurance engagements where the relevant services are performed by an individual or firm who is independent from the entity being audited. There is a legal requirement for listed companies to submit to a yearly external audit of financial statements, with a rotation of the appointed auditor occurring at specific intervals as directed by ASIC. External audits have the purpose of allowing third parties to decide whether an entity’s financial reports reflect their financial position as of a given point in time. This would include:
- The details recorded in the entity’s balance sheet, such as what is owed, what is owned, and whether this information is documented in accordance with the relevant accounting standards; and
- Whether the financial statements contain an appropriate assessment of the entity’s profits and losses for the period of time under audit.
When the auditor has completed work on an external audit, they will provide an audit report which sets out the work they performed, findings obtained, and an opinion drawn from their work on the external audit. At all stages of the external audit process, from commencement to the provision of the audit report, the auditor must adhere to the Australian Auditing Standards.
The Australian Auditing Standards set out the auditor’s responsibilities whilst conducting a financial audit, as well as the form in which they prepare the audit report and the information it must contain. These criteria are also set out in the Standards on Assurance Engagements, which apply to other audit and assurance services besides financial audits. The auditing standards clearly emphasise the importance of auditor independence, and the responsibilities of auditors in establishing and maintaining the required independence standards. By law, the auditing standards that apply to an individual audit or assurance engagement must be listed in the audit report. This ensures that the users of the audit report have a clear understanding of the auditor independence and other standards that govern the work that has gone in to the report.
The team of auditors Melbourne at Kingston & Knight Audit is an example of what auditor independence can do to provide audit and assurance services of the highest quality. Our auditors Melbourne are held to the highest standards in accordance with our own professional practice and the requirements of regulators and peak bodies. As a result, you can always rely on Kingston & Knight Audit to deliver audit and assurance services that meet the requirements of your entity and its stakeholders, allowing important decisions to be made using the information we have examined.
We look forward to answering your questions about auditing standards and auditor independence during your free telephone consultation with a member of the Kingston & Knight Audit team. To learn more about the standards for auditor independence affecting your audit and assurance engagement, contact the auditors Melbourne at Kingston & Knight Audit today on 1800 283 471, or email us via firstname.lastname@example.org.