Accy405 - Individual Assignment 5

Accy405 - Individual Assignment 5 - Accy405 Individual...

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Accy405 Individual Assignment 5 Yue Deng Question 17-6 Compare and contrasts the concepts of independence in fact and independence in appearance. Why you agree or disagree with the notion that independence in appearance is equally as important as independence in fact, keeping in mind that this argument has been the subject of much heated debate by those who feel strongly about each position Independence in fact means auditors are not tempted to bias the execution of the audit which could manifest itself in poor decisions related to the gathering and evaluation of evidence or the nature and extent of disclosures in the financial statements. Independence in appearance means that an auditor should do nothing that creates a perception that he or she has vested interest in the outcome of an audit. It is important that the auditor is not only acts independently, but appears independent too. This is because firstly, “independent in mind” (actual independence) is impossible to assess. In determining whether to avoid a particular activity or relationship, the auditor should be guided not solely by the effect the activity or relationship would have on his or her objectivity, but by the effect it would be expected to have on most auditors’ objectivity. Secondly, If an auditor is in fact independent, but one of more factors suggest otherwise, this could lead to the public concluding that the audit report does not true and fair view. As a result, the auditor is not independent in appearance. This diminishes the function of audit report, which aims at lowering the information asymmetry between firms and investors. In addition, independence in appearances further reduces the opportunity for an auditor to act otherwise than independently, which subsequently adds credibility to the audit report. Therefore, Independence in fact and independence in appearance are equally important. Question 17-7 For each of the following threats to independence discussed in the chapter,
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This note was uploaded on 04/10/2011 for the course ACCY 405 taught by Professor Staff during the Spring '08 term at University of Illinois, Urbana Champaign.

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Accy405 - Individual Assignment 5 - Accy405 Individual...

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