ACC571 Case Response 2- Case 47

ACC571 Case Response 2- Case 47 - Case Response 2 1 Case...

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Case Response 2 1 Case Response 2: Chapter 5 - Case 47 Explain to Your New Boss Why Auditor Independence Is Important and Identify Specific Steps that Must Be Taken to Ensure Compliance with the Independence Requirements of Sarbanes-Oxley Strayer University Case Response 2:
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Case Response 2 2 Chapter 5 - Case 47 Explain to Your New Boss Why Auditor Independence Is Important and Identify Specific Steps that Must Be Taken to Ensure Compliance with the Independence Requirements of Sarbanes-Oxley The importance of auditor independence “Auditor independence is often referred to as the cornerstone of the auditing profession” (Lindberg & Beck, 2004, p.36). Independece is a crucial concept as an external auditor’s core mission is to certify the public reports that describe companies’ financial status. It is fundamental to the reliability of auditors’ reports. That is, independence increases the effectiveness of the audit by providing assurance that the auditor will plan and execute the audit objectively. High- quality audits enhance the reliability of the financial reporting process by investors and other users, facilitating optimal allocation of capital. Hopwood, Leiner, and Young (2008) stated that “external auditors should be independent of the company in both fact and appearance” (p.274). Krishna Moorthy, Seetharaman, and Saravanan (2010) also noted that auditor independence helps to ensure quality and contributes to financial reporting process, and has long been associated in terms of independence in fact and independence in appearance. If auditors were not independent in both fact and appearance, those reports would not be credible, and investors and creditors would have little confidence in them. It is essential to an accurate understanding by stockholders and the public of how their businesses are performing that managers of publicly- held firms present fairly the financial status of their businesses. Managers are expected by law to publicly report their financial results according to generally accepted accounting principles. Without this accurate reporting, the presentations of financial status and creditworthiness, for
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Case Response 2 3 example to the stock and bond markets and to tax collectors and for loan applications, by publicly-held firms would lack believability. Compliance with the independence requirements of SOX For compliance with the independence requirement of Sarbanes-Oxley Act of 2002 (SOX), there are two specific steps that must be taken by public companies. One is conformity with Section 301 of SOX to fund an audit committee. The other is conformity with Title 2 of SOX to make sure compliance with auditor independence. The Title 2 of SOX concerns auditor independence. Accordingly, Hopwood, Leiner, and Young (2008) devided Title 2 into three major objectives including (a) prohibited certain audit and non-audit services, (b) mandatory rotation of audit partners, and (c) mandatory auditors reports to the audit committee. Funding an
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ACC571 Case Response 2- Case 47 - Case Response 2 1 Case...

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