Independence of auditors

Essay by tongguoUniversity, Bachelor's March 2009

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Can auditors remain truly independent when conducting an annual audit of financial statements if their firms provided non audit services (NAS) to audit clients?

For many businesses auditing is a useful tool that has been implemented within their business operation to assist decision makings undertaken by the stakeholders. Auditing has also become a compulsory regulatory compliance that needs to be satisfied by public companies listed in the capital market, in which it is imposed for the purpose of protecting investors in a way as to mitigate against the risk of fraudulent activities concealed by the managements of the firm. It is evident from the past that managers tend to deceive investors through the manipulation of financial statements causing substantial economical losses suffered not only by the investors, but also the company itself in terms of bankruptcy. Therefore auditing has always played a vital role in safeguarding investor's interests by enhancing the degree of trustworthiness and objectiveness of the financial statements.

Like all other professionals, auditors have long had a legal duty to provide a reasonably level of care while performing work for those they serve, however there are existing deficiencies within the regulatory arena that needs to be rectified in order to promote the effectiveness of the audit system. Those deficiencies were identified through the occurrences of major business failures in the past there were speculated to be caused by false and misleading statement provided by the auditors. Consequently it is critical and urgent to reinforce the audit system through the introduction of new regulations to focus on ensuring that auditors perform their tasks within the legal and professional frameworks, and to enhance the credibility and objectivity of the audit reports. This essay will discuss the question 'can auditors remain truly independent when conducting an annual audit of financial statements...