Discussing ethical issues with those charged with governance and audit committees if one exists. These expectation gap is filling up by the courts or legislation through the cases in past century. Any opinions, findings, conclusions, or recommendations expressed in this dissertation are those of the authors and do not necessarily reflect the views of UKDiss.com. It used to be the duty of the corporation’s CFO to employ an external auditor. It is as reported on 1st March, 2020. Auditors responsibility has been widened with the time and now has been extended to the third party who are other than the investors, shareholders and stakeholders. Safeguards created by the firm’s own systems and procedures (Professional and Ethical Standard 1, 2016): To export a reference to this article please select a referencing stye below: If you are the original writer of this dissertation and no longer wish to have your work published on the UKDiss.com website then please: Our academic writing and marking services can help you! The section 207U of the Company Act 1993 further protect the independence of the auditor by rule for replacing the qualified auditor. And it is this experience, according to the report, that will allow the independent auditor to precisely challenge management on the most contentious areas. There is a chance of intimidation threat due to the pressure from HIH for the reduced fees as well. So, in contrast to the approach taken in Kingston Cotton Mill case, In Pacific Acceptance case, judge held an auditor responsible for the losses occurring since they should reasonably have communicated their suspicions to management and was negligent in not reporting suspicions (Mills, 1990). The author Gupta (1999) is of opinion that is auditor is not independent of management; his opinion would mean nothing to shareholders, prospective investors, bankers, government agencies, and others who are concerned with the financial statements o… Auditors must be able to review material objectively and come up with a neutral, accurate, and honest report on the outcome of their investigations. The auditor is entitled to be paid by the company reasonable fees and expenses for making the representation to shareholders (Companies Act 1993, 2018). Why independent audit committees matter? The debate surrounding the role of external auditors focuses in particular on auditor independence. Investors could lose money which would affect pension funds, the economy could therefore suffer leading to a financial crisis (especially if huge corporations collapse) and this would lead to a reduction in the welfare of the public. Under the recommendation 3.2 of NZX Corporate Governance, no employee of the company can attend the committee meeting without the invitation from the audit committee which protect the independence of the audit committee from any undue influence (NZX Corporate Governance Code 2017, 2017). So, the issue of auditor’s independence has always been an important public concern and a matter of many debates, especially because of the fiduciary role played by the auditors in modern society. The auditors are expected to give an unbiased and honest professional opinion on the financial statements to the shareholders. The findings were in favour of the auditors which was contrasted with the findings in the AWA case where the auditor was found negligent (Malane, 2005). They believe that once the auditor signed the annual report of the company it means that the company has been investigated for fraud and wrongdoing and the financial statement are totally accurate and it reflects the true financial position of the company (Mills, 1990). If the directors of the company have been misleading the auditor by providing manipulated accounting information, then they may try to prevent auditor from reporting this. For example, stock options give upper management incentives to boost short-term stock prices at the expense of a company’s long-term viability. The different perception of public and accountancy profession about the role and responsibilities of an external audit creates the expectation gap. Self-review—when an auditor evaluates a situation that is a consequence of a previous judgment or advice by the auditor or the auditor’s firm. In 2000, Andersen received $27m for non-audit services, compared with $25m for audit services, meaning Enron accounted for over 25% of the fees generated by the firm’s Houston office. It was one of the landmark decision on auditor’s responsibilities by Justice Moffitt where an auditor was referred to as a “skilled inquirer” who prefer to know by direct investigation rather than rely on client management and staff (Kujinga, 2009). Audit independence is important so that auditor’s opinion can be impartial, unbiased, free from any undue influence or conflict of interest to override the professional judgement of the professional accounting (Rutgers Accounting Web, 2015). There are various regulations and guidelines as lay down by New Zealand to protect audit independence. Theses all facts indicate the presence of familiarity threat to his independence due to his personal relation with HIH directors and self-interest threat due to his long audit relationship with company, fees generating through audit and non-audit services. Before issuing the report, the Widgets audit partner should also discuss Marker’s independence assessment and the safeguards applied with the Widgets board. Independence has been the focus of almost constant controversy, debate and analysis (Law, 2008, p.917). However, the auditor’s understanding about their responsibilities are different than the public beliefs. Opposite to this case, In Columbia Coffee & Tea Pty Ltd v. Churchill (1992) where the Judge held the decision against using the audit firm’s manual to rule that the auditor owed duty of care to the third party. The primary purpose of an audit is to provide company shareholders with an expert, independent opinion as to whether the annual accounts of the company reflect a true and fair view of the financial position of the company and whether they can be relied on. So if the period of audit to the client is just few years, the risk is quite low so as a safeguards, audit firm can simply let the another partner to review the audit but if the audit period is longer such as 10 years, then the risk is significantly high so audit rotation (rotation of audit partner or even audit manager in some cases) would be better as the safeguard. For example, consider yourself a potential investor in ABC Company. The decision of the New Zealand Court of Appeal in the Scott Group case agreed that the auditors had been negligent when they failed to detect a material error in the accounts of a company. Section 290.172 of Code of Ethics, generally prohibits the provision of accounting and bookkeeping services to audit clients that are public interest entities. In BGJ Holdings case, the auditors raised the matter with other directors and senior executives by means of a letter of recommendation. Enron is the another classic case for the corporate collapse due to the lack of audit independence as one of the major reason along with the objectivity by the auditors, series of accounting fraud, failure of the board and poor corporate ethics (Tom Campbell, 2005). Why Important? 290.219–222 of the Code (Professional and Ethical Standard 1, 2016). Pacific Acceptance (1970) had changed the standard of care and skill which was established since the Kingston Cotton Mill case of 1986. (b) the services relate to matters that are collectively immaterial to the financial statements of the division or related entity (Professional and Ethical Standard 1, 2016). The client has implemented internal procedures that ensure objective choices in commissioning non-assurance engagements. The ultimate safeguard is resignation. Independence is an important auditing standard because the auditor adds justification and credibility to financial statement even when there are no material misstatements or omissions in the financial statements prepared by management (okolie 2007). At the root of both this mismanagement and the failure of monitoring systems lie conflicts of interest. The activities such as unapproved employee bonuses paid to managers and executives, manipulation of the financial statement to present the favourable financial position, wrong accounting treatment despite of the auditor’s involvement were highlighted in the report. 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