What is auditor independence and what is its significance to the audit profession
Auditor independence is the independence of both internal and external auditors. It involves the auditors and the company being audited. It involves carrying out audits devoid of any influence from parties with financial interests in the company. It involves separation of personal and professional feelings, mostly stipulated in the auditors’ code of conduct. It is important in that auditor’s opinions are based on the actual findings from the audit. Auditors are esteemed to be independent and unbiased when dealing with financial statements (Kinney 73). This is significant as they are impartial during the audit process, therefore giving opinions that reflect a true and fair view of the financial statements.
What is the difference between independence in appearance and independence in fact?
Under what circumstances is a company allowed to change the useful life and salvage value of its assets?
A company is allowed to modify the useful life and salvage value of its fixed assets under GAAPS if circumstances provide information that indicates that such a change will precisely represent the current market position. There are circumstances in which a company has the lifeline to change its useful life in saving its fixed assets. (Kinney 69). Variations to the variables used in valuing depreciation and the resultant impact on investors should be revealed in the financial statements to be in harmony with GAAP. For audit evidence, an auditor should scrutinize significant information, comparing the useful life adopted by the company and the industry at large with the actual company’s experience in the past. This aids in determining whether the company’s decision to change its useful life is appropriate under GAAP.
Background of Enron’s bankruptcy
Enron was an American commodities, service and energy company in Houston, Texas. Before its collapse in 2001, it was among the major pulp and paper, natural gas, communications and electricity companies in the world. It was branded the most innovative company for six years consecutively. It was involved in transmission and distribution of electricity all over America, with power plants and pipelines owned networks. Enron’s scandal resulted from a creatively, institutionalized and systematically planned accounting fraud. Arthur Andersen was Enron’s auditor firm. It was accused of conducting audits based on reckless standards driven by a conflict of interest. Andersen’s overall performance was attributed to the massive breakup of the company. They did not fulfill their professional responsibilities. They provided financial statements that were above the standards of the shareholders, presented complex business models, misrepresented earnings and altered balance sheet figures, all of which would indicate the firm’s favorable performance. Enron’s key executive officers were; Kenneth Lay, the chief executive officer and chairman, Andrew Fastow as the chief financial officer. Enron’s bankruptcy brought with it some implications. The laying off of its employees left a large population unemployed left only with their social security funds to depend on. The investors were not left behind, as they were restricted from selling off their stock even on loss of value.
Work cited
U.S. Securities and Exchange Commission. (26 March 2002). “SECURITIES AND EXCHANGE COMMISSION vs. DEAN L. BUNTROCK, PHILLIP B. ROONEY, JAMES E. KOENIG, THOMAS C. HAU, HERBERT A. GETZ, and BRUCE D. TOBECKSEN.” http://www.sec.gov/litigation/litreleases/lr17435.htm
Kinney, William, R, ”Auditor Independence: A Burdensome constraint or Core value?” Accounting Horizons 13.1 (1999): 69-75. print
