Safeguard of Auditor Independence

11 November 2016

As such, it relieves the Board from detailed involvement in the review of result of audit activities. Third, the audit committee able to review with the external auditors their audit plan and evaluation of internal control simultaneously promotes fair reporting from the prospective of shareholders, creditors and employees (Auditing and Assurance Services in Malaysia, 3rd Edition 2007). (ii)Rotation of Audit Partner Sarbanes-Oxley Act of 2002, Section 203 stated audit partner must rotate every 5 years (www. sarbanes-oxley. om). We do not support as regular rotation increase the risk of audit failures because significant time required developing the necessary knowledge of a client to ensure the audit approach is effectively (www. fao. org/docrep/meeting/008/J2128e. htm). The auditor may reluctance to invest time and resources in learning the client’s organization and activities when the auditor’s mandate is short and rotation date approaches could lose interest in the client. 10 It involved significant cost for both client and auditor.

The investment of time and resources in helping new auditor acquaint himself with the organization’s system and procedures is time-consuming and costly as similar for the auditor. (iii)Restrictions on Non-Audit Services Section 201under Sarbanes-Oxley Act 2002 stated it is unlawful for an auditing firm to provide both audit services and non-audit services simultaneously (www. sarbanes-oxley. com). We support the recommendation because it creates independence impairment with respect to the entities they audit.

Non-audit services could impair the quality of audit work thus reliability of financial statement called into question. The auditor also gains close relationship with management auditors may take sides with the client instead of following regulations. There is also a risk that increased income from non-audit services add to the auditing firm’s dependence on client. When facing the risk of losing services of a client, an auditor is less willing to criticize than if the auditor only provided audit services. iv)Safeguard Within The Firm’s Own Systems and Procedures We support the above recommendation because the firm’s own systems and procedures can influenced all the auditors become more independent and easily to monitor their performance as use the firm’s own system. Policies and procedures empower auditors to communicate to senior levels within the firm any issue of independent and objectivity that may concern them. Besides, it helps to monitor and manage the reliance on revenue received from a single assurance client.

In other circumstances, appropriate training and advice will be given by the auditing firm to create awareness to the auditor to become more independent under auditing firm own system control. (v)Safeguards Created By the Profession; Legislation or Regulation Profession, legislation or regulation would have to develop to govern the audit function. An auditor needs to own a standard set of judgment areas such as accounting principles, significant estimates and so on. Safeguards created include education, training, corporate governance regulations, professional standard and so on. www. mia. org. my/handbook/bylaws_new/default. htm) We support the given safeguard measure as profession standards may increased the auditing standard thus strengthen the independents audit function and professional judgment. Second, legislation and regulation allowed auditors have more objective information states that the element is fairly presented. Finally, the close relationship with the client is prohibited under regulation of the firms to create independent of the auditors.

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