Independent Auditor

Posted in Finance, Accounting and Economics Terms, Total Reads: 397
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Definition: Independent Auditor

An independent auditor is a Certified Public Accountant (CPA) or a Chartered Accountant (CA) who examines the financial records of a company which he/she is not affiliated with. An independent auditor is sometimes also called an ‘external auditor’.


Purpose of external auditors:

• To maintain transparency

• To submit an unbiased and independent audit report

• To protect shareholders’ and investors’ interests from fraudulent claims made by certain companies

• To improve the auditing and accounting procedures of public companies


Types of services offered by independent auditors:

• Examining financial statements and related financial data

• Providing recommendations to achieve greater efficiency

• Communicating to external parties the financial status of the client

• Evaluating assets of the company

• Analysing business processes and operations


Independent auditors are often mandated in many companies. This became increasingly important and relevant after the introduction of Sarbanes Oxley Act (SOX). While independent auditors are normally supposed to submit an ‘independent audit’, sometimes because of cost constraints, companies ask them to submit a ‘review’ or a ‘compilation’ annually while an independent audit is performed once in every few years.


Since the independent auditors need to have an objective approach and integrity towards the audit process, auditor independence is important. Independence of the external auditor refers to independence from any party that may have an interest in the financial statements or business being audited. The external auditor is liable to third parties who may be affected by the decisions made based on the audit reports. Although, according to the Ultramares Doctrine, auditors are liable only to specific third parties who are named. Independent auditors are also restricted to the type of services they can provide to the clients that they audit, after that SOX Act. Independent auditors either work for public service firms or they are self-employed.

 

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