[1] Since 2000, a wave of high-profile accounting scandals have cast the profession into the limelight, negatively affecting the public perception of auditor independence.
[2][3] Programming independence essentially protects the auditor's ability to select the most appropriate strategy when conducting an audit.
In addition, the auditing profession is a dynamic one, with new techniques constantly being developed and upgraded which the auditor may decide to use.
Reporting independence protects the auditors’ ability to choose to reveal to the public any information they believe should be disclosed.
If company directors have been misleading shareholders by falsifying accounting information, they will strive to prevent the auditors from reporting this.
To maintain independence and neutrality, internal adjudicators should report directly to the Audit Committee and have unrestricted access to all applicable information and labor force within the association.
The support from and relation to the Audit Committee of the client company, the contract and the contractual reference to public accounting standards/codes generally provides independence from management, the code of ethics of the Public Accountant profession helps give guidance on independence form suppliers, clients, and third parties.
Internal and external concerns are convoluted when nominally independent divisions of a firm provide auditing and consulting services.
If an auditor is in fact independent, but one or more factors suggest otherwise, this could potentially lead to the public concluding that the audit report does not represent a true and fair view.
Ultimately, as long as the client determines audit appointments and fees an auditor will never be able to have complete economic independence.
Audit firms on occasions quote low prices to directors to ensure repeat business, or to get new clients.
Helping a company reduce its tax charges or acting as a consultant for the implementation of a new computer system, are common examples.
Having this additional working relationship with the client would result in questions being asked of the independence of the audit firm.
The firm would no longer be unbiased, as it would want the company to perform well so it can continue to earn the addition fee for their consultancy.
[8] Prior to the 1970s audit firms were not allowed to advertise their services and take part in bidding competitions for contracts.
An example of the negative effects a long-term tenure has on auditor independence is the consideration to issue a going-concern opinion.
However, former Chairman James R. Doty encouraged both supporters and non-supporters of audit firm rotation to continue to research this topic.
have advocated that in order for an auditor to remain strictly independent they should not be allowed to provide audit clients with any other advisory services.
This idea was detailed in the EC's Eighth Directive and was designed to remove conflicts of interest arising from audit companies having a high percentage of total revenue staked in the contract of one client.
Both auditors and their clients have argued that the knowledge acquired during the audit process can allow other services to be provided less expensively.
A peer review is a recurring external assessment of a firm's quality control system, sometimes referred to as monitoring.
This process helps members cultivate and increase audit quality to further advance the uniformity within the profession.
For auditors of non issuers, peer review is required once every three years of the firms auditing practice and accounting department.
During the peer review process for a nonissuer, members are required to be convinced that the employee's on the engagement have the ability to manage the assigned services.
For accelerated filers, firms who audit over 100 issuers every year, are required to have a peer review annually, performed by the PCAOB.
[10] One possible explanation is that it is difficult and costly to obtain the client-specific knowledge required to produce a high quality audit.
This is based on an Australian study, where mandatory audit partner rotation was introduced in 2004 by the CLERP 9 legislation.
However, legislation establishing the appointments and terms of office of the Auditor General may make rotation impractical.
The European Commission has issued on 16/5/02 a recommendation: "Statutory Auditors’ Independence in the EU, A Set of Fundamental Principles".
No countries within the EU, with the exception of Italy, currently have a system of mandatory audit firm rotation.