What Is Financial Independence?

CPA independence means substantial independence and formal independence. Substantial independence means that the professional judgment of the certified public accountant is not affected when he expresses his opinion, and he practiced impartially, maintaining objective and professional skepticism; formal independence means that the accounting firm or the assurance team avoids such a major situation that makes Reasonable third parties with sufficient relevant information conclude that their fairness, objectivity, or professional suspicion has been compromised.

Independence

(Accounting)

(1) Preventive measures arising from occupations, laws or regulations

Education, training and experience requirements for entering the profession;

continuing education requirements;

Practice standards and supervision and punishment procedures;

External review of the quality control system of the accounting firm;

Laws on the independence requirements of accounting firms.

(2) Internal precautions for authentication customers

When the management of the attesting client entrusts the accounting firm, the entrustment is approved or agreed by someone other than the management;

Verify that there are employees in the customer who are competent for management decisions;

Emphasize the policies and procedures for attesting customers' commitment to the fairness of financial reports;

Internal procedures that can ensure objective selection when entrusting non-authentication business;

A corporate governance structure that provides appropriate supervision and communication for the services of accounting firms, such as audit committees.

(3) Preventive measures of accounting firms

A. General precautions for maintaining independence

Senior managers of accounting firms value independence and require members of the assurance team to maintain independence;

Formulate policies and procedures on independence, including identifying factors that threaten independence, assessing the severity of the threat, and taking appropriate maintenance measures;

Establish necessary supervision and punishment mechanisms to promote compliance with relevant policies and procedures;

Timely communicate relevant policies and procedures and changes to all senior managers and employees;

Develop policies and procedures that enable employees to reflect independence issues to higher-level personnel.

B. Specific precautions for maintaining independence

Arrange for a CPA outside the assurance team to conduct a review;

Rotate project leaders and signing accountants regularly;

Discuss independence issues with the audit committee or the board of supervisors of the client;

Inform the audit committee or the board of supervisors of the client of the service and the scope of fees;

Develop policies and procedures to ensure that members of the assurance team do not exercise management decisions or assume corresponding responsibilities on behalf of the assurance client; Remove members of the assurance team whose independence is threatened from the assurance team.

(4) Evaluation after implementation of preventive measures

When the maintenance measures are not enough to eliminate the impact of threats to independence or cannot reduce the impact to an acceptable level, the accounting firm should refuse to undertake the business or terminate the business agreement.

Arrange for a CPA outside the assurance team to conduct a review;

Rotate project leaders and signing accountants regularly;

Discuss independence issues with the audit committee or the board of supervisors of the client;

Inform the audit committee or the board of supervisors of the client of the service and the scope of fees;

Develop policies and procedures to ensure that members of the assurance team do not exercise management decisions or assume corresponding responsibilities on behalf of the assurance client; Remove members of the assurance team whose independence is threatened from the assurance team.

Independence requires certified accountants to have substantial independence and formal independence. The CPA maintains substantial independence. This mentality keeps audit opinions from being affected by any factors that undermine professional judgment, enables people to act impartially, and maintains objectivity and professional caution. The CPA maintains formal independence and avoids significant facts and circumstances, which causes a reasonable third party with sufficient relevant information to reasonably presume the impartiality, objectivity, or professional prudence of the members of the accounting firm or the assurance team.

Define all situations that may pose a threat to independence and point out that all appropriate precautions should be taken. In addition, the nature of the attestation business may be different, and accordingly different threats may exist, requiring different precautionary measures. Therefore, it is in the public interest to establish a set of norms that require accounting firms and members of the assurance team to identify and evaluate threats to independence and the targeted measures they should take.

In accordance with the rules of independence, accountants and assurance team members are obliged to identify and evaluate the various environments and relationships that may threaten independence, and take appropriate actions to eliminate these threats or use precautions to reduce them to acceptable levels. In addition to identifying and evaluating the relationship between the accounting firm and the assurance team, consideration should also be given to whether the relationship between people outside the assurance team and the assurance client poses a threat to independence.

There are differences in the nature of the threat of independence and the appropriate precautions necessary to eliminate or reduce the threat to acceptable levels, depending on the characteristics of the business: whether the attestation business is an audit business or another type of business; in Where the assurance business is a non-audit business, the difference depends on the purpose, audience and intended users of the report. Therefore, when deciding whether it is appropriate to accept or continue a business, when determining the nature of the precautionary measures required, and when deciding whether a person can be a member of the assurance team, they should evaluate the relevant environment and assurance business. Nature and threats to independence.

Auditing provides assurance to a wide range of potential users. In addition to substantial independence, formal independence is also important. Therefore, for audit clients, accountants and members of the assurance team are required to be independent of the audit clients. Based on the same considerations, when providing assurance services to non-audit clients, members of accounting firms and assurance teams are also required to be independent of non-audit assurance clients.

If a report issued to a non-audit assurance client is clearly limited to the use of a designated user, the user of the report is deemed to have participated in determining the nature and scope of the various instructions provided by the accounting firm and the criteria used to evaluate the subject of the assurance, A clear understanding of the purpose, audience and limitations of the report has been achieved. This understanding and the improvement in the ability of accounting firms to communicate preventive measures with users of reports has enhanced the effectiveness of preventive measures that ensure formal independence.

In summary, for the assurance business provided to audit clients, members of the accounting firm and the assurance team are required to be independent of the client; for the assurance business provided to non-audit clients, if the report is not explicitly limited to the designated users, then Require members of the accounting firm and the assurance team to be independent of the client; for the provision of assurance services to non-audit clients, if the report is clearly limited to the designated user, the members of the assurance team are required to be independent of the client, and the accounting firm This customer has significant direct or indirect economic benefits.