Factors Impairing Auditor’s Independence:Audit Quality and Financial Reporting

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Strength of client’s corporate governance

Provision of non-audit services

 

SKU: Acc1928222

A major role of auditors is providing an independent verification of, and adding credibility to, the financial statements and, therefore, facilitating market transactions through establishing and maintaining confidence in capital markets.

Nevertheless, in the process of expressing an opinion on the client’s financial statements, certain number of factors may influence the auditor’s independence. The auditor’s ability to withstand pressure from a client when resolving issues can be modelled as a function of the client’s source of power relative to the auditor’s source of power. The way auditors deal with these factors can have a significant effect on audit quality and independence and, hence, on the content and credibility of financial statements.

Hence, this questionnaire is designed to measure your assessment of the impact of four listed factors on auditor’s independence. These four factors are:

1. Length of audit tenure;

2. Provision of non-audit services;

3. Strength of client’s corporate governance; and

4. Size of audit firms.

However, before turning to the questionnaire, listed below are some basic definitions that might help the respondent-subject while going through the questionnaire.

 

Questionnaire

In your opinion, how likely each factor of the following four factors may negatively/positively affect auditor’s independence:

Factors Impact on Independence
Impaired Preserved
1. Length of audit tenure
2. Provision of non-audit services
3. Strength of client’s corporate governance
4. Size of audit firm

 

In brief, please state in the free space provided below, the rationale behind your choices above.

 

Learning Outcomes for this Project:

LO1: Demonstrate effective written communication skills.

LO5: Work effectively in teams.

 

First Component :

This first component is based on a debatable issue titled “The factors that may influence auditors’ independence” and is group assessed with a weight of 15 marks towards the overall grade of this course. Please refer to the following section for the requirements of this component.

First Component Requirements:

“Much research has been carried out to outline whether the following four factors may have an impact on auditor’s independence: (1) length of audit tenure; (2) provision of non-audit services (NAS); (3) strength of client’s corporate governance; (4) size of audit firms. Some argue that these factors are found to enhance audit quality, but an opposing argument perceives that these factors put audit quality at significant unnecessary risk and undermines the reliability of financial reporting for any company.”

Discuss the above debate and evaluate the suggestions provided for and against each of the aforementioned four factors in enhancing/reducing auditor’s independence. In your report, you should be able to:

1. Comprehensively describe and explain the debate for each of the four factors highlighted above and the implications for auditors’ independence and the impact on the credibility and reliability of financial reporting.

2. Each group should at the end of their written report provide their own reflection based on their readings.

 

Second Component :

This second component is based on each group completing a questionnaire by approaching one of the professional auditors who are actively practicing auditing in Qatar. The questionnaire is attached at the end of this document.

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