2 It was the final day of a two－week－long audit of Van Buren Company, a longstanding clien

Question

2 It was the final day of a two-week-long audit of Van Buren Company, a longstanding client of Fillmore Pierce Auditors.

In the afternoon, Anne Hayes, a recently qualified accountant and member of the audit team, was following an audit

trail on some cash payments when she discovered what she described to the audit partner, Zachary Lincoln, as an

‘irregularity’. A large and material cash payment had been recorded with no recipient named. The corresponding

invoice was handwritten on a scrap of paper and the signature was illegible.

Zachary, the audit partner, was under pressure to finish the audit that afternoon. He advised Anne to seek an

explanation from Frank Monroe, the client’s finance director. Zachary told her that Van Buren was a longstanding client

of Fillmore Pierce and he would be surprised if there was anything unethical or illegal about the payment. He said

that he had personally been involved in the Van Buren audit for the last eight years and that it had always been

without incident. He also said that Frank Monroe was an old friend of his from university days and that he was certain

that he wouldn’t approve anything unethical or illegal. Zachary said that Fillmore Pierce had also done some

consultancy for Van Buren so it was a very important client that he didn’t want Anne to upset with unwelcome and

uncomfortable questioning.

When Anne sought an explanation from Mr Monroe, she was told that nobody could remember what the payment

was for but that she had to recognise that ‘real’ audits were sometimes a bit messy and that not all audit trails would

end as she might like them to. He also reminded her that it was the final day and both he and the audit firm were

under time pressure to conclude business and get the audit signed off.

When Anne told Zachary what Frank had said, Zachary agreed not to get the audit signed off without Anne’s support,

but warned her that she should be very certain that the irregularity was worth delaying the signoff for. It was therefore

now Anne’s decision whether to extend the audit or have it signed off by the end of Friday afternoon.

Required:

(a) Explain why ‘auditor independence’ is necessary in auditor-client relationships and describe THREE threats

to auditor independence in the case. (9 marks)

Answer 1

正确答案：
(a) Importance of independence
The auditor must be materially independent of the client for the following reasons:
To increase credibility and to underpin confidence in the process. In an external audit, this will primarily be for the benefit of
the shareholders and in an internal audit, it will often be for the audit committee that is, in turn, the recipient of the internal
audit report.
To ensure the reliability of the audit report. Any evidence of lack of independence (or ‘capture’) has the potential to undermine
all or part of the audit report thus rendering the exercise flawed.
To ensure the effectiveness of the investigation of the process being audited. An audit, by definition, is only effective as a
means of interrogation if the parties are independent of each other.
Three threats to independence
There are three threats to independence described in the case.
The same audit partner (Zachary) was assigned to Van Buren in eight consecutive years. This is an association threat and is
a contravention of some corporate governance codes. Both Sarbanes-Oxley and the Smith Guidance (contained in the UK
Combined Code), for example, specify auditor rotation to avoid association threat.
Fillmore Pierce provides more than one service to the same client. One of the threats to independence identified between
Arthur Andersen and Enron after the Enron collapse was an over-dependence on Enron by Andersen arising from the provision
of several services to the same client. Good practice is not to offer additional services to audit clients to avoid the appearance
of compromised independence. Some corporate governance codes formally prohibit this.
The audit partner (Zachary) is an old friend of the financial director of Van Buren (Frank). This ‘familiarity’ threat should be
declared to Fillmore Pierce at the outset and it may disqualify Zachary from acting as audit partner on the Van Buren account.