What Is Auditor Independence?

Auditing independence means that auditors maintain their spiritual and substantial independence from the audited unit. It is one of the basic principles of audit work. The so-called spiritual independence means that auditors maintain an independent attitude in performing audit work, and from an objective and fair stand, freely and objectively collect audit evidence, and perform reasonable and reasonable audit evidence in accordance with certain standards and principles. Evaluation, strict adherence to professional ethics, do not succumb to pressure from any aspect. The so-called substantial independence means that the auditor has an independent identity, and there is no economic relationship with the audited unit and other relationships that impair independence, such as immediate family members. In the international auditing standards and the auditing standards of developed countries in the West, independence is very important. Chapter II of the Lima DeclarationA Guide to Auditing Rules specifically addresses the issue of audit independence, providing that the supreme state audit organization has functional and organizational independence, the independence of the members and officials of the highest audit organization, and Financial independence of the audit organization. ^[1]

Audit independence

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(I) From the perspective of audit effectiveness, audit effectiveness depends not only on the formal and substantial independence of auditors, but also on the objective, impartial, professional knowledge and

1. The measure of substantive independence judges substantive independence by looking at whether the accounting firm or the certified public accountant and the entrusting unit are actually without any interest. We may wish to proceed from the audit implementation process and propose a measure of substantial independence that is appropriate for the specific link in light of the characteristics of each link.

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Since audit independence has a crucial impact on audit quality, it is important to study what factors affect audit independence. The factors that affect independence are mainly based on the following aspects:

1. The impact of the audit market on independence China is trying to push the CPA business to the market as a developed country, but China has not yet formed a sound audit market. As far as the demand side of the audit market is concerned, despite our current funding procedures,

Reasons for lack of audit independence

Aiming at China's CPA audit market, the author analyzes the reasons for the lack of audit independence from three aspects:

From

I. Status of audit independence

With the development of China's market economy, the nature of capital's profitability has been fully exerted and reflected, and the disclosure of fraud cases is not a certified public accountant, but a lay news media or other analysts. Why do CPAs have both professional competence and the necessary auditing procedures, but fail to find problems and fulfill their audit responsibilities? For this reason, the independent rights and interests of China's CPA audits have been questioned by the public.

Factors affecting audit independence

At different stages of social development, the audit independence of CPAs is affected differently. The factors that affect the independence of Chinese certified public accountants' auditing are as follows.

(I) Institutional factors The development of China's certified public accountant profession and the unique institutional background have a greater impact on audit independence. When accounting firms were established, they were either "office-run" or linked. This has played a certain positive role in the development of China's certified public accountant profession, but also brought about a certain negative impact. The natural "mother-child" relationship formed by the anchor has led to the abnormal development of the audit market. At the end of 1999, although the decoupling of the accounting firm was completed, this "mother and child" relationship could not be isolated. Therefore, in order to support the development of local accounting firms, some local governments have excessively intervened in the administration to form industry monopolies and regional monopolies. This has led to unfair competition between accounting firms and audits issued by accounting firms. Reports cannot escape the power of administration. In such a state, it is difficult for a certified public accountant to maintain its independence, thereby failing to guarantee the quality of the audit.

(2) Lack of a rigorous ex post punishment mechanism. China is still in the initial stage of the development of a market economy, the legal system is still not perfect, and the supervision methods are also very immature. It is often difficult for listed companies to detect and investigate fraud. The pressure of the CPA under the pressure of the audited unit also often produces inappropriate audit reports. The cost of counterfeiting is very low, but the benefits to the two parties are huge. This is the direct cause of violations. In addition, although China s Criminal Law, Accounting Law, Certified Public Accountants Law, and Securities Law have provisions for administrative, criminal, and civil liability for violations by units and registered clubs, The problems of non-compliance with laws and strict enforcement of law are more prominent. The CPA system in China has been restored for more than 20 years, and the general punishment for CPAs involved in fraud cases has not been enough, and it has not played a role in killing one hundred people.

(3) Affected by the level of practice of certified public accountants From the perspective of their professional capabilities, some of our certified public accountants still have a large gap compared with their foreign counterparts. There are not many certified public accountants in China with strong comprehensive ability, high quality, and practical experience. In addition, China's lack of supervision and training departments is temporarily lacking, it is difficult for CPAs to quickly improve their professional judgment.

(IV) The impact of economic benefits Audit objectively exists the relationship between the client, the auditee and the auditor. The problem is that the public does not directly entrust the CPA, but instead entrusts and pays through the audited unit. At this time, there may be a system trap for audit independence, namely the purchase of audit opinions. Driven by economic benefits, the CPA collects the audit fees of the audited unit, but is responsible to investors, creditors and the public who do not pay the fees. This determines the independence between the CPA and the entrusting unit and external organizations. Relationship play becomes very delicate and complicated. At the same time, auditing also requires CPAs to be familiar with many actions, decisions and judgments of management authorities that have a significant impact on financial reporting in order to make correct judgments. Therefore, objectively, CPAs and management authorities must maintain a close working relationship. It is very difficult for CPAs to maintain complete independence.

Third, measures to enhance the independence of auditing in China

Certified public accountants must maintain their independence. While strengthening the quality of the CPA industry, we should be committed to the formation of a sufficient audit market, clarify the legal responsibilities of CPAs, improve the dual supervision mechanism of CPA audits, optimize the practice environment, and effectively enhance China's CPAs. Audit independence.

(I) Improve the organizational structure and establish a sufficient audit market

1. To further improve the organizational structure of accounting firms and promote a partnership system. In the early days of decoupling and restructuring, most companies chose limited liability organizations. However, the registered capital of a limited liability firm is too low, which is not conducive to the establishment of a sense of risk by the firm and the certified public accountant. As a partnership firm assumes unlimited liability, the partners' interests are closely linked to the firm's performance and destiny, which further enhances the risk. , Responsibility, quality, and brand awareness pressure and motivation, the unlimited liability partnership system can provide greater independence for the independence of certified public accountants, and more adapt to the current economic situation.

2. By improving the capital market and corporate governance structure, the choice of accounting firms is changed from government choice to market choice, reducing the possibility of administrative intervention. Reform the client system to change the audit client to be the shareholders 'general meeting of the enterprise rather than the management authority, so that the shareholders' general meeting truly fulfills its due powers and obligations and strengthens the owner's restraint on the operator.

3. Improve the access standards for the audit market. Large accounting firms have stronger guarantee capabilities, which is helpful to dilute the regional color of audit activities and change the situation of artificial division due to historical reasons such as administrative intervention. Today, the audit market is becoming more international, and more competitive Accounting firm. Therefore, it is necessary to take appropriate measures to promote the merger and development of the firm and form a sufficient audit market.

(II) Improve the dual supervision mechanism combining self-regulation of the CPA industry with government supervision

The Chinese Institute of Certified Public Accountants implements management of the national social auditing industry in accordance with the law and accepts the supervision of the Ministry of Finance and the Audit Office in accordance with the law. The division of labor and cooperation between institutions, establish and improve the organic coordination mechanism between these external regulators and the Institute of Certified Public Accountants as a self-regulatory organization of certified public accountants, avoid multiple supervision or a regulatory vacuum, and give full play to the role of regulators and self-regulatory agencies. effect.

(3) Clarification of civil liability for accounting firms and certified public accountants

In China, the penalties for violations of accounting firms and certified public accountants are not very clear. Although the current "CPA Law" provides for administrative, criminal and civil responsibilities, it lacks operability. In practice, it also focuses on administrative responsibilities, but uses civil liability less. Strengthening the civil liability is to restrict the CPA profession at the expense of the CPA's economic interests, regulate the ethics of the CPA and the integrity of the public. From a legal perspective, the means of the market is the means of civil compensation. Civil penalties in the United States are mainly based on civil compensation. This type of civil compensation mechanism has played an important role in restricting the behavior of certified public accountants and accounting firms and improving the quality of audits.

(IV) Improving the practice level of certified public accountants and strengthening the professional ethics construction of certified public accountants

1. Improve professional competence. Strengthen the follow-up education of CPAs to improve the technical level of CPAs; learn from the advanced experience of foreign CPAs with the opening of the audit market; strict the annual inspection system of CPAs; conduct regular examinations to check the practice level of CPAs.

2. Consciously implement the audit avoidance system. Article 18 of the "CPA Law" clearly stipulates that "CPAs and clients should be avoided if they have an interest relationship; the client has the right to ask him to avoid" and affect the independence of the audit on the direct or indirect economic interests that may arise. The conduct was prohibited (art. 20). The Regulations on Certified Public Accountants enacted in various places have detailed regulations on the situations that need to be avoided. Therefore, in the course of public practice, the CPA should actively implement the avoidance system in accordance with the law to ensure the independence of the audit.

3. Strengthen the professional ethics education of certified public accountants. The professional ethics level of the CPA is closely related to maintaining independence. All the lack of independence is related to the lack of professional ethics. Professional ethics is the inherent motivation for CPAs to maintain their independence. Only with a high level of professional ethics, can CPAs consciously resist the pressure of stakeholders in the practice process and maintain independence, treat all stakeholders with fairness and objectivity. Therefore, the professional ethics education of certified public accountants should always be unremitting.