The SEC rules on audit independence are often organized into five key areas: (A) Prohibited Non-Audit Services; (B) Audit Committee Pre-Approval of Services; (C) Partner Rotation; (D) Conflict of Interest; and (E) Increased Communication and Disclosure.
An independent auditor is typically used to avoid conflicts of interest and to ensure the integrity of performing an audit. Independent auditors are often used—or even mandated—to protect shareholders and potential investors from the occasional fraudulent or unrepresentative financial claims made by public companies.
Ultimately, as long as audit appointments and fees are determined by the company being audited, the auditor can never truly be economically independent of the client. That is why there are broader codes of conduct which govern the relationship between both parties.
The general standard of auditor independence under the requirements is that an auditor is not independent with respect to the audit client if a reasonable, fully informed investor would conclude that the auditor is not capable of exercising objective and impartial judgment on all issues encompassed within the audit ...
Independence will be considered to be impaired if, during the period of a professional engagement, a member or his or her firm had any cooperative arrangement with the client that was material to the member's firm or to the client.
Auditor independence is part of the foundation of the auditing profession. An independent, reliable, and ethically sound audit gives a company credibility and allows the public to trust in the accuracy of the results and the integrity of the accounting profession.
Audit committees typically approve selection of the external auditor. ... Audit committees also help ensure the external auditor is independent, meaning no conflicts of interest exist that might interfere with the auditor's ability to issue its opinion on the financial statements.
Under the final rules: The audit committee of each listed company must be comprised solely of “independent” directors, subject to certain limited exemptions. ... The audit committee must have the authority to engage independent counsel and other advisors, as the committee determines necessary to carry out its duties.
There are two important aspects to independence which must be distinguished from each other: independence in fact (real independence) and independence in appearance (perceived independence). Together, both forms are essential to achieve the goals of independence.
The primary role of the audit committee is to provide independence in communication and oversight relating to the audit process, which helps to ensure accurate financial reporting.
An independent audit is an examination of the financial records, accounts, business transactions, accounting practices, and internal controls of a charitable nonprofit by an "independent" auditor.
Internal auditors are independent when they render impartial and unbiased judgment in the conduct of their engagement. ... The internal auditor should have an impartial, unbiased attitude and avoid conflict-of-interest situations, as that would prejudice his/her ability to perform the duties objectively.
The auditor independence is measured by how honest an auditor is in reporting the material misstatements found in the financial statements by managers. The auditor maintains his/her independence by not having any conflicts of interest with the client (managers).
Covered member.
This term refers to an individual, firm or entity capable of influencing an attest engagement.
A “covered person” includes members of the audit engagement team and those in the chain of command, as well as any other partner, principal, shareholder or managerial employee of the audit firm who has provided 10 or more hours of nonaudit services to the audit client for the current accounting period or on a recurring ...
INDEPENDENCE IN FACT
In Accounting Series Release no. 269, the SEC defined independence in fact and independence in appearance as separate but equally necessary factors in establishing the auditor's objectivity and integrity when certifying financial statements filed with the commission by an issuer of securities.