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Control is one of the most important tools of achieving scheduled and desired results. People as well as companies would not perform their job without control. There are a lot of kinds of control, such as state, departmental, independent, and others. Independent control is control performed by independent auditors and audit firms that check for correctness and authenticity of company’s financial statements. Audit is a “formal examination of an organization's or individual's accounts or financial situation” (“Audit,” n.d.). Also, another crucial function of audit control is providing recommendation for improvement of the current situation. Consequently, in order to provide unbiased opinion on the financial situation and reasonable recommendations, auditors should be independent. Furthermore, nonobservance of auditor’s independence might result in unreliable conclusions.
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Necessity for independent audit is driven by several reasons. It is known fact that financial statements are made for providing truthful, authentic, and unprejudiced information for perusal by internal and external users. These people and institutions use financial statements in the process of making decisions, which can influence further company’s activity. That is why, financial statements and audit conclusion should be truthful and authentic. Many users of financial statement can make a wrong decision based on untruthful audit conclusion and financial statements; and as a result, some companies ca become bankrupt. Therefore, auditors should think about not only company’s performance and profitability but also company’s employees and their fates in the process of making audit conclusion.
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Also, audit conclusion can affect reputation and image of the audit company. That is why, audit company is interested in providing truthful and authentic conclusion and high-quality implementation of its functions and tasks. It would be reasonable to remain unprejudiced and independent for such a famous audit company as Arthur Andersen Auditors, which has made an untruthful audit conclusion about the financial state of Enron. Arthur Andersen’s reputation was spoiled after the Enron’s bankruptcy in 2001. Many well-known Arthur Andersen’s clients refused to use the company’s services and became clients of the “Big Four.” “Very few people were involved with the scandal at Arthur Andersen. Enron collapsed, investors lost money, and confidence was eroded” (Edelman & Nicholson, 2011). That is why, value of audit company’s image and reputation is another important reason for providing truthful and authentic audit conclusion. One mistake can be fatal and every audit company should remember that.
Also, there is an international code of auditor’s ethics. Any auditor and audit company should follow the rules of the code. Let us imagine Undoubtfully, there should be no doctor or teacher who does not follow the professional and ethical code of conductt. The same applies to auditing companies as ethics is an important principle and virtue of honest business and people. Any audit services and business in general can not be honest without following the basic principles of fairness and unbiased opinion.
Thus, the three reasons for necessity of auditor’s independence as discussed above are crucial for any auditing company. However, companies should not forget about their responsibility to provide truthful and reliable information on their financial condition as well.
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There are a lot of circumstances, which allow doubting actual independence between auditor and client. Such circumstances may include financial relations between the auditor and client, any kinds of family connections, payments under the contract, current or future lawsuits, and former partnership between auditor and client can be the circumstances. Yet, auditing firms and companies themselves need to consider business matters and their own prospects for future as well as profitability rather than close short-term relationships with each other and their stakeholders.
To conclude, it is worth noting that any kind of dependence is bad and unfavorable for any business. Only independence and self-sufficiency can be the reliable base of qualitative implementation of any kind of work. Thus, unbiased auditing requires auditor’s independence since it is the most important precondition of qualitative implementation of auditor’s tasks.
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