Auditors independence Independence of the internal auditor Independence of the external auditor Types of independence Real independence and perceived independence RELATIONSHIP BETWEEN AUDITING WITH OTHER SUBJECTS

1. AUDITORS INDEPENDENCE
Auditor independence refers to the independence of the internal auditor or of the external
auditor from parties that may have a financial interest in the business being audited.
Independence requires integrity and an objective approach to the audit process. The concept
requires the auditor to carry out his or her work freely and in an objective manner.
Independence of the internal auditor means independence from parties whose interests might
be harmed by the results of an audit. Specific internal management issues are inadequate risk
management, inadequate internal controls, and poor governance. The Charter of Audit and the
reporting to an Audit Committee generally provides independence from management, the code
of ethics of the company (and of the Internal Audit profession) helps give guidance on
independence form suppliers, clients, third parties, etc.
Independence of the external auditor means independence from parties that have an interest in
the results published in financial statements of an entity. 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, third parties...
Internal and external concerns are convoluted when nominally independent divisions of a firm
provide auditing and consulting services.[1] The Sarbanes-Oxley Act of 2002 is a legal reaction to
such problems.
This article mostly deals with the independence of the statutory auditor (commonly called
external auditor). For the independence of the Internal Audit, see Chief audit executive,
articles "Independent attitude" and "organisational independence", or organizational
independence analysed by the IIA.
The purpose of an audit is to enhance the credibility of financial statements by providing written
reasonable assurance from an independent source that they present a true and fair view in
accordance with an accounting standard. This objective will not be met if users of the audit
report believe that the auditor may have been influenced by other parties, more specifically
company managers/directors or by conflicting interests (e.g. if the auditor owns shares in the
company to be audited). In addition to technical competence, auditor independence is the most
important factor in establishing the credibility of the audit opinion.
Auditor independence is commonly referred to as the cornerstone of the auditing profession
since it is the foundation of the public’s trust in the accounting profession.[2] 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. Types of independence
There are three main ways in which the auditor’s independence can manifest itself. Programming
independence
 Investigative independence
 Reporting independence
Programming independence essentially protects the auditor’s ability to select the most
appropriate strategy when conducting an audit. Auditors must be free to approach a piece of
work in whatever manner they consider best. As a client company grows and conducts new
activities, the auditor’s approach will likely have to adapt to account for these. In addition, the
auditing profession is a dynamic one, with new techniques constantly being developed and
upgraded which the auditor may decide to use. The strategy/proposed methods which the
auditors intends to implement cannot be inhibited in any way.
While programming independence protects auditors’ ability to select appropriate strategies,
investigative independence protects the auditor’s ability to implement the strategies in whatever
manner they consider necessary. Basically, auditors must have unlimited access to all company
information. Any queries regarding a company’s business and accounting treatment must be
answered by the company. The collection of audit evidence is an essential process, and cannot be
restricted in any way by the client company.
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. It is in situations like this when auditor independence is most likely to be
compromised.
Real independence and perceived independence
There are two important aspects to independence which must be distinguished from each other:
independence in fact (real independence) and independence in appearance (perceived
independence). Together, both forms are essential to achieve the goals of independence. Real
independence refers to independence of the auditor, also known as independence of mind. More
specifically, real independence concerns the state of mind an auditor is in, and how the auditor
acts in/deals with a specific situation. An auditor who is independent 'in fact' has the ability to
make independent decisions even if there is a perceived lack of independence present,[2] or if the
auditor is placed in a compromising position by company directors. Many difficulties lie in
determining whether an auditor is truly independent, since it is impossible to observe and
measure a person’s mental attitude and personal integrity. Similarly, an auditor’s objectivity
must be beyond question, but how can this be guaranteed and measured? This is why perceived
independence is of such importance.

3. It is essential that the auditor not only acts independently, but appears independent too. 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.
Independence in appearances also reduces the opportunity for an auditor to act otherwise than
independently, which subsequently adds credibility to the audit report.
RELATIONSHIP BETWEEN AUDITING WITH OTHER SUBJECTS
Auditing is a multi-dimensional subject. The subject has its origin from accounting and take the
assistance of different other subjects to enrich the content of it. In order to develop different
techniques in the conduct of audit, it has adopted the sampling techniques of statistics in the one
hand; the behavioural scientific approach has also to be understood by the auditors to deal with
the employees and management of the organisation in which the auditors are conducting audit on
the other. Various subjects which are interrelated with the subject of auditing and extend
assistance in developing the auditing subject over a period of time are the following:
Auditing and Accounting
The basic function of accounting is to record the economic events that have the effect in
changing the financial position of an organisation and to prepare the financial statements at the
end of a particular accounting period. On the other hand, auditors are appointed in the
organisation to check the authenticity and reliability of the books of accounts maintained by the
organisation and the relevant documents preserved to support the transactions. After proper
checking, the auditor is supposed to submit a report to the owners of the organisation to state
whether the books of accounts give a true and fair view of the state of the affairs of the
organisation as disclosed in the financial statements.
In the light of the above two functions of accounting and auditing, it can be said that auditing is a
technique of accounting control. The accountants know that if there is any irregularity in
maintaining the books of accounts, the auditor will report against that irregularity.
Auditing and Statistics and Mathematics
The application of statistical and mathematical tool in conducting audit is very important from
the point of view of auditor's effectiveness in discharging his duties. Due to paucity of time, it is
not possible for the auditor to conduct in depth checking of different transactions in an
organisation. Test checking is the only way out and the technique of test checking is basically
based on one of the statistical tool, i.e., sampling. Different other mathematical and statistical
techniques are adopted in conducting audit in the areas of vouching, verification and routine
checking to make the audit procedures effective.
Auditing and Behavioural Science
The auditor should know the organisation as well as the employees and staff working in it to
discharge his functions properly. The auditor is required to interact with the employees of the

4. organisation at the time of conducting audit in order to know the fact, to read in between the
lines entered in the books of accounts and also required to get clarifications about certain matters
in the process of his auditing work. The behavioural aspects of the auditor with the employees
and staff members are very important in this context. Most of the employees of the organisation
take the auditors as the ‘fault-finders’ and not as facilitators. How to get the required information
from the organisation by interacting with the employees and staff members of the organisation is
the subject matter of the behavioural science and the auditor should develop the required skills of
behavioural science to discharge his duties efficiently.
Auditing and Law
The discipline of regulatory framework is very closely linked with the work of auditing. In
conducting audit, particularly in case of statutory audit, the auditor is supposed to ensure the
organisation that all the legal formalities which are required to be complied by the organisation
has been complied with. In order to give this assurance, the auditor is supposed to know all the
legal aspects governing the maintenance of accounts as well as the functioning of the
organisation. In case of company audit, the maintenance of accounts and the functions of the
auditors are governed by the Companies Act and the auditor is required to ensure that all the
provisions as contained in the Companies Act are duly adhered to in maintaining the books of
accounts as well as in conducting the audit of the company form of organisation. The knowledge
of taxation laws is also very important for the auditor in discharging his duties effectively.
Different other regulatory framework including Contract Act, Negotiable Instrument Act,
Banking regulations Act etc. are also to be known by the auditors for discharge of effective audit
for the organisation.
Auditing and Economics
The auditor is required to be familiar with the present economic condition of the country as well
of the industry in which the organization belongs to perform his functions in a better way. In
accounting, only those transactions are recorded in the books of accounts, which have any
economic impact on the organisation. To assess the economic impact of any event, it is necessary
for the auditor to understand the theories of economics to a certain extent and if he can
understand the economic logic behind a transaction he will be able to conduct the audit of that
transaction more accurately. As the auditor is concerned with the accumulation and presentation
of data relating to economic activity, he is expected to be familiar with the overall economic
environment in which the organisation is operating.
Auditing and Management
Auditing is also closely connected with different field of management, particularly the financial
management and the production or operational management of the organization. In most of the
organisations, financial services play an important role and dominate most of the activities of the
organisations. The decisions taken and implemented by the organizations are governed by the
financial implications of the actions. Besides, the auditor is expected to have a fair idea about
various financial techniques as well as different components of financial markets to improve the

5. quality of his audit work. Again, if the operational process part of the organisation is not known
to the auditor, it will be difficult for him to track the flow of activities within the organisation
and ultimately he will not be able to perform his auditing functions with confidence.
Auditing and Computer Application
There is a tremendous switch over from manual accounting to computerized accounting by the
organisation in the last few years. The auditors are required to conduct audit in computer
information system environment. Different advanced accounting software are used by the
organisations for recording the economic activities of the organisations. In order to cope up with
the changes in the auditing environment, the auditors are now supposed to know the computer
application to a comfortable level. The auditors are also in a position to adopt different computer
aided audit techniques in the present days to conduct the audit in less time as well as in a
systematic manner. Hence, the relationship between auditing and computer application is very
close.
In addition to the subjects mentioned above, auditing is also directly or indirectly related to a
number of subjects. As the area of auditing has extended to a large extent, the subjects which are
becoming important for the auditor are also increasing day by day. For example, environmental
audit is a serious concern in the present day context. In order to conduct environmental audit
efficiently, the auditor is supposed to know the content and concern of environmental science.