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What is the meaning of independence from the perspective of the government auditor and why is independence so important? See the article below to answer the question.

Independence The standard of independence covers both independence of mind and independence in appearance. Independence of mind concerns the state of mind that permits the auditor to audit without being affected by influences that may compromise professional judgment, thereby allowing the auditor to act with integrity, objectivity and professional skepticism. Independence in appearance concerns the absence of circumstances that would cause a reasonable third party to reasonably conclude that the auditors integrity, objectivity, and professional skepticism had been compromised. (Government Auditing Standards, par. 3.02 3.59)

Characteristics of a Good Auditor This section elaborates on the general standards discussed in the previous section, based partly on personal experience. We believe the effective auditor has high ethical standards, is independent and objective, exercises due professional care (with a healthy dose of professional skepticism), can communicate and innovate, and undergoes continuing professional education. Independence Auditors are independent when they can carry out their work without fear of unwarranted repercussions. The issue of auditor independence has gained increasing attention because of the past corporate financial reporting scandals Performance auditors must be able to report on the activities of the managers they are auditing. To ensure accountability, the citizens, their elected representatives, and program managers need information to assess the integrity, performance and stewardship of a governments activities. Unless there are valid reasons for doing otherwise (such as public safety and security concerns), audit reports should be available to the public, to other levels supplied resources, to the lagislature, and to the management of the of government that have

entity audited. If an auditor hesitates to address certain issues, such as the control environment (managements philosophy, managements operating style, competence of people), it is likely the auditor lacks the independence to properly address the issues confronting the organization. To illustrate the importance of independence, consider the Audit in Action entitled Reporting on Incompetent Management.

Audit in Action Reporting on Incompetent Management Auditors concluded that there were significant shortcomings in the basic operations of a large state agency. The organization was responsible for liquidating bankrupt insurance companies. There were more than 50 insurance companies un der managements supervision. However, the auditors found that basic financial controls were not in place. Despite having more than 500 bankaccounts, management did not require that bank reconciliations be done. There was no listing ofthe assets of the bankrupt insurance companies. As the audit progressed, the auditors continued to find significant shortcomings in every area reviewed. In considering the cause of the problems, they concluded that the state agencys top managers were not qualified for the positions they held. The deputy in charge was the press officer of the departments parent organization, and his top assistants were appointed to their positions because of their political connections. None of them had a background in managing insurance companies. Because of their independence, the auditors were able to report on the lack of competence of management in administering the day-to- day affairs of the entity. Without an appropriate level of independence, the auditors ability to get to the underlying cause of theagencys problems would have been diminish ed.

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Answer #1

Meaning of Independence from the perspective of the government auditor

  1. Independence means that the judgement of a person is not subordinate to wishes of another person who might have engaged him or his own self- interest. Independence is a condition of mind and personal character.
  2. It require that he should not act under any influence
  3. Thus, he can work in a complete unbiased manner.

Independence comprises the following:   

a. Independence of mind: The state of mind that permits the conduct of an engagement without being affected by influences that compromise professional judgment, thereby allowing an individual to act with integrity and exercise objectivity and professional skepticism.

b. Independence in appearance: The absence of circumstances that would cause a reasonable and informed third party to reasonably conclude that the integrity, objectivity, or professional skepticism of an audit organization or member of the engagement team had been compromised

Importance

  1. It protect the interest of those person who are not associated with the management.
  2. It act as a moral check on the employee from committing defalcations/embezzlement
  3. It helpful in settling tax liability
  4. It help in evaluating the credit worthiness in negotiating loan.
  5. It also useful in determining purchase consideration for a business.
  6. It is useful in settling the trade dispute with labour union.
  7. Independent audited financial statement are useful in settling disputes with arbitrator.
  8. It help in the settlement of accounts, valuation of goodwill etc.
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