Why is Auditor Independence Important?

(1) Reliability of financial information
• Reliability of financial information is a key aspect of Corporate Governance.
• S/H and other stakeholders need a trustworthy record of directors’ stewardship to be able to take decision about company.
• Assurance provided by Auditors is a key quality control on the reliability of information.


(2) Credibility of financial information
• An unqualified report by independent external auditors on the account should give credibility and enhance the appeal of the company to investors.
• This unqualified report should represent the views of independent experts who are not motivated by personal interests to give a favourable opinion.


(3) Value for money of audit work
• A lack of independence seems to mean that important audit work may not be done, and thus shareholders are not receiving value for the audit fees.


(4) Threats to professional standards
• A lack of independence may lead to a failure to fulfill professional requirements to obtain enough evidence to form the basis of an audit opinion, in this case, to obtain details of a questionable material item.
• Failure by auditors to do this undermines the credibility of the accountancy profession and standards it enforces.



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