Audit Theory and Practice Article Example | Topics and Well Written Essays - 2000 words

Audit Theory and Practice - Article Example This requires of the auditor to issue a 'statement of independence' containing a number of declarations such as: As per information derived from literature sources, the major criteria of a standard auditing process are: professional ethics, auditors' legal liability, audit risk, accepting the engagement and planning the audit, internal control over auditing process, audit sampling, designing substantive procedures, auditing different financial instruments and completing and reporting the audit (Cosserat, 2004, Eilifsen & Messier, 2006). Each of these core criteria will later be examined for strengthening our core argument that successful auditing can only ensue from a high degree of dissimilarity between auditors and the company being audited. The independence of auditors for various business activities has been ensured over a long period of time based on unsavoury corporate scandals such as Enron in 1997. At present, the International Federation of Accountants (IFAC) as part of its standard code of ethics (revised rules) has proposed the following structural changes in auditing activities: 1. 1. Taking a 'conceptual approach' to independence: This is an approach which reconciles any perceived threat to independence of auditors, accepts safeguards and takes appropriate steps (interventions) to eliminate threats (Liandu, 2002). 2. No one fixed set of rules: Under IFAC guidelines, it's no longer possible to allow just one set of rules for a given auditing scenario. This is because each specific scenario is now recognised for its own merit in order to generate a set of financial instruments for the auditing activity (Liandu, 2002). 3. The importance of assurance services: In addition to company data, auditors are now encouraged to increasingly rely on secondary data such as performance indicators, statistical information, market and media reports, systems and processes and compliance with regulatory guidelines (Liandu, 2002). The purpose of assurance services is to enhance the credibility of overall information at the disposal of the auditor. 4. Safeguards mechanism: The general principle is that any kind of self-interest, self-review, advocacy, familiarity and intimidation can threaten auditing independence (Liandu, 2002). A number of safeguards are hence, proposed. Regulatory enforcement of independence requirements, external review of a firm's quality control service, keeping technical data up-to-date, a corporate governance structure which provides oversight to services provided by a firm, communications about independence, rotating senior personnel and performing annual review of the auditing exercise (Liandu, 2002). With regard to Cosserat (2004) core criteria of auditing