How to improve and maintain the independence of external auditors Essay

Auditor ‘s duty is to give advice based on the company ‘s one-year fiscal statements. A company will work with the hearer ‘s one-year study of the determination. So this is an of import hearer to supply accurate studies. ( Dr Jill, Professor Robin ) [ on-line ]

An independent hearer to give the sentiment that is no other factors. It includes human, economic, pecuniary, and so on. Their position is that there is no bound, and give them the freedom to show their positions based on their expertness. Besides, they must be clear and to guarantee no mistakes in the sentiment. As they say is a company in of import concern determinations. Although this is the advice given by individual, but as a professional hearer should cut down accidents.

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Professional hearer must be independent of its work. When jobs occur, they must be the cooling clip and the clip taken to work out the job, without any confusion. An independent hearer must be a smart, intelligent individual. Because they know how to manage and work out their ain jobs without people help.

Code of moralss

Code of moralss is formed to assist the hearers aware to the countries where ethical force per unit area may be and be in dependent all the clip. Independent hearers are non merely responsible to their client but besides the public involvement. Therefore, they should follow the codification of moralss. ( Sagar, Mead, Bampton, 2008 )

There are some cardinal rules in codification of moralss which must followed by them. First, the external hearers must integrity which means they must straightforward and be honest. If they find that any information contains a materially false, they should non be associated with studies. Following rule is objectivity where the external hearers must non let prejudice, struggle of involvement and should non act upon by the others when doing determination. ( ACCA, 2007 )

Besides, external hearers must accomplish the rule of professional competency and due attention. This means that the hearers should hold professional cognition and accomplishment. In order to make this, they must ever maintenance by consciousness to the professional development to maintain up of day of the month. They must besides act confidentiality by non unwrap any information to the 3rd parties unless there is legal right to unwrap. However, in make up one’s minding to unwrap the information, external hearers should see about the involvement of all parties, to whom the information is give, and whether the information is substantiated. At last, the external hearers must hold professional behavior where comply with Torahs and ordinances. ( ACCA, 2005 )

The codification of moralss requires external hearers to place, measure and react to threats which affect their independency and use precautions to cut down the menaces. For illustration, acquaintance menace may be created from household and close personal relationship, and hence, the external hearers should take precaution such as removed themselves in the squad. If possible, they are encouraged non involved themselves in fortunes that may endanger their independency such as fiscal involvement, near concern relationship with clients and others. ( Sagar, Mead, Bampton, 2008 )

On the other manus, the external hearers must independence of head and besides visual aspect. This means that they must hold head that allow them do decision without being influenced by others and moving unity, exercising objectiveness and professional agnosticism. Besides, the hearers should avoid the important facts, holding all cognition related to the relevant information and ever seen to be independency. ( ACCA, 2007 )

Code of moralss are really of import to do certain the independency hearers carry out their work with professional competency and due attention. Besides, it can do certain they provide independent sentiment when provide confidence services because the public depend on their cognition, accomplishments and expertness. ( Sagar, Mead, Bampton, 2008 )

However, it besides has restrictions. It will do the people excessively reliance on the codifications until do non develop their moral sensitiveness and this will ensue in the incorrect determination. Besides, when the existent and professed behavior of a company is different, the codifications can be counterproductive. ( Deon, 2002 ) [ online ]

In 2007, the By-Laws which adopt the Code was introduced by MIA. The By-Laws provide model of rules to followed by hearers and assist them to execute at highest criterions of professionalism. ( Accountants today, 2007 )

2.3 Company jurisprudence

Companies Act 1965 is administered by Companies Commission of Malaysia ( CCM ) which was set up to supply regulative model for companies. ( Rachagan, Pascoe, Joshi, 2002 )

To guarantee the independency of external hearers, the commissariats of the Act covering with assignment and remotion of hearers are designed. In the Companies Act 1965, subdivision 8 ( 1 ) stated that a individual must be an sanctioned company hearer if a individual wants to go an hearer. ( Woon, 1996 )

The makings for an sanctioned company hearer are good character and tantrum to execute responsibilities. Besides, a individual must go a member registered with a regulative organic structure at national degree under company jurisprudence such as MIA in Malaysia. A individual must besides passed measure uping test from specific establishment or become member of measure uping organic structures such as ACCA or CIMA in United Kingdom ( UK ) . The most of import making is a individual must be independent from officer. ( Chan, Koh, Ling, 2006 )

In order to guarantee the external hearers are independency and moving with professional competency, there are some state of affairss under the act where a individual is non measure up to be an sanctioned company hearer. ( Woon, 1996 ) These state of affairss are such as employee of an officer of the company, owed the company more than RM2500, spouse of an officer of the company, etc. ( Chan, Koh, Ling, 2006 ) Section 172 ( 4 ) in Companies Act 1965 indicate that hearers can be removed when they become unsuitable to go on their responsibilities. ( Woon, 1996 )

Rights and responsibilities which stated in jurisprudence allow the hearers perform their responsibilities by independency. ( Arens, et al. ) Section 174 ( 2 ) ( a ) in Companies Act 1965 stated that the hearers are required to organize an sentiment and study to the stockholders whether the fiscal statement provided by manager is true and just. ( Chan, Koh, Ling, 2006 ) They must exert sensible attention and accomplishment in perform their responsibilities. ( Woon, 1996 )

When perform responsibilities to give sentiment, the external hearers must be province that whether acquire all information and account, whether the company kept proper accounting as required by the Act, and whether proper returns are received from subdivision offices. This is indicated in the Companies Act 2006, subdivision 498. ( ACCA, 2008 )

On the other manus, to enable the external hearers perform their responsibilities independently, they have certain rights which included in the jurisprudence. Section 174 in Companies Act 1965 allows them to entree the records and accounting of company, acquire information or account from officer, and attend any general meeting including obtain information which related to the meeting. ( Woon, 1996 )

The demands in Act help the independent external hearers perform their occupation at a high criterion public presentation and professional. ( Arens, et al. ) In 2008, new demands for UK hearers were carried out by Companies Act 2006. There were about revelation demand, presentment demand about discontinuing and etc. ( Takwani, 2009 )

2.4 Audit commission ( corporate administration )

Besides the instance of companies like Enron and WorldCom, at the same clip, the demand of audit commission is besides arise due to the prostration of Bumiputra Malaysian Finance Limited ( BMF ) in Malaysia. ( Saudagaran, 2005 ) Corporate administration required audit commission is carried out by board where the commission is operated by two or three independent non-executive managers. This is to guarantee nonsubjective and professional relationship within the hearers. ( ACCA, 2007 )

Based on Cadbury study, audit commission provide a model which the external hearers can act independency in their responsibilities. ( ACCA, 2006 ) This is because audit commission is responsible to do recommendation about the assignment, remotion, and wage of external hearers in order independent hearers is chosen. ( Woolf, 1997 ) Besides, the audit commission will reexamine and supervise the independency and objectiveness of external hearers to guarantee the making of hearers ‘ study. ( Saudagaran, 2005 )

External hearers are required by corporate administration to supply study on the concluding histories prepared by manager whether it show true and just position associating to the company ‘s fiscal statement, and liquidness place. ( Pickett, 2005 ) In order to guarantee the independency of external hearers, audit commission review the nature of non-audit services provided by them in order they are non excessively familiar with the direction and operation of the company. ( ACCA, 2007 ) There are allowed to execute some basic revenue enhancement work and services like employee preparation, and confidence work. ( Pickett K.H.S, Pickett J.M, 2005 )

Besides, audit commission will entree the making, expertness, resource, and independency of external hearers every twelvemonth to guarantee their quality. It have processs to guarantee the independency of external hearers by consider all relationship between the external hearer and company. In instance of former employees of external hearer is employed by the company, audit commission will see there is no damage of hearer ‘s independency. ( Collier, Agyei-Ampomah, 2006 )

The advantages of audit commission are supplying independency point of mention to the hearers because the commission is carried out by all independent non-executive managers. ( ACCA, 2007 ) Besides, audit commission help the external hearers to acquire information they need and overcome the jobs which threaten their independency. ( Woolf, 1997 )

However, due to the official coverage process of audit commission, hearers are prevented from raising affairs of opinion and describing merely on fact affairs. ( ACCA, 2008 ) Audit commission is besides being argued that failed to reexamine hearer ‘s work efficaciously and make non play effectual function between clients and hearer. ( Abdullah, no dated ) [ on-line ] Besides, ‘two-tier ‘ board of managers are created where the managers involved in the fiscal statement and managers do non involved. ( ACCA, 2007 )

In order to better corporate administration, Malaysia introduced International Financial Reporting Standards ( IFRS ) in 2006 where can assist to increase transparence of fiscal statement. ( Woodward, So, Ng, 2007 )

Decision

The regulative models above purpose to better and keep the independency of external hearers in order to guarantee high quality of audits and services are carried out. However, some of them have restrictions. Harmonizing to Joseph Stiglitz, inefficient accounting model will take to bad public presentation of the company. ( Willsher, 2009 ) Therefore, they need to be developed and improved.

In term of codification of moralss, the hearers must ever keep independency, transparence and aware on the alterations of legislative and regulative because the ordinance and conformity ever addition. ( Accountants today, 2007 ) On the other manus, audit commission must do certain the external hearers are executing independently, objectiveness and free from influence. ( Moxey, 2009 )

Besides, good corporate administration should hold a to the full independent external audit procedure and overseen by an effectual audit commission where lead by members that have appropriate fiscal literacy and accounting making. ( Moxey, 2009 )

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