A Framework for Auditor Independence
A Framework for Auditor Independence
The ISB lays a foundation for future guidance.
By Susan McGrath, Arthur Siegel, Thomas W. Dunfee, Alan S. Glazer and Henry R. Jaenicke
January 2001
EXECUTIVE SUMMARY
THE INDEPENDENCE STANDARDS BOARD issued an exposure draft for a conceptual framework for auditor independence containing the concepts and basic principles that will guide the board in its future standard setting.
THE NEED FOR A FRAMEWORK AROSE FROM the jumble of confusing independence rules and regulations that applied to public companies and their auditors, many in the form of interpretations issued in response to specific independence questions.
THE FRAMEWORK DEFINES AUDITOR INDEPENDENCE and identifies its goals. The ISB’s model for standard setters involves three steps: (1) identify threats to the auditor’s independence and consider their significance; (2) evaluate the effectiveness of potential safeguards, including restrictions; and (3) determine an acceptable level of independence risk.
UNDER THE FRAMEWORK, THE GOAL OF INDEPENDENCE is “to support user reliance on the financial reporting process and to enhance capital market efficiency.” The goal looks beyond the immediate benefit of the auditor’s independence—unbiased audit decisions—to the broader targets of user reliance on the financial reporting process and enhanced capital market efficiency.
ONE OF THE MOST CONTROVERSIAL ASPECTS of the auditor independence debate is the role that “appearance” should play in setting standards. The ED, in its discussion of the definition and goal of independence, specifies that the board and other standard setters should consider the perceptions of investors and other users of financial information.
Susan McGrath, CPA, is a director at the ISB and ARTHUR SIEGEL, CPA, serves as the board’s executive director. Their e-mail addresses are smcgrath@cpaindependence.org and asiegel@cpaindependence.org . Thomas W. Dunfee, the Joseph Kolodny Professor of Social
The ISB lays a foundation for future guidance.
By Susan McGrath, Arthur Siegel, Thomas W. Dunfee, Alan S. Glazer and Henry R. Jaenicke
January 2001
EXECUTIVE SUMMARY
THE INDEPENDENCE STANDARDS BOARD issued an exposure draft for a conceptual framework for auditor independence containing the concepts and basic principles that will guide the board in its future standard setting.
THE NEED FOR A FRAMEWORK AROSE FROM the jumble of confusing independence rules and regulations that applied to public companies and their auditors, many in the form of interpretations issued in response to specific independence questions.
THE FRAMEWORK DEFINES AUDITOR INDEPENDENCE and identifies its goals. The ISB’s model for standard setters involves three steps: (1) identify threats to the auditor’s independence and consider their significance; (2) evaluate the effectiveness of potential safeguards, including restrictions; and (3) determine an acceptable level of independence risk.
UNDER THE FRAMEWORK, THE GOAL OF INDEPENDENCE is “to support user reliance on the financial reporting process and to enhance capital market efficiency.” The goal looks beyond the immediate benefit of the auditor’s independence—unbiased audit decisions—to the broader targets of user reliance on the financial reporting process and enhanced capital market efficiency.
ONE OF THE MOST CONTROVERSIAL ASPECTS of the auditor independence debate is the role that “appearance” should play in setting standards. The ED, in its discussion of the definition and goal of independence, specifies that the board and other standard setters should consider the perceptions of investors and other users of financial information.
Susan McGrath, CPA, is a director at the ISB and ARTHUR SIEGEL, CPA, serves as the board’s executive director. Their e-mail addresses are smcgrath@cpaindependence.org and asiegel@cpaindependence.org . Thomas W. Dunfee, the Joseph Kolodny Professor of Social