Week 4 - Audit Independence and Objectivity

Question 1

Define objectivity

Answer 1

A state of mind that excludes bias, prejudice and compromise

Question 2

Define independence

Answer 2

Relates to the circumstances surrounding a situation e.g financial, business and personal relationships… Freedom from situations and relationships that would make it probable that a reasonable and informed third party would conclude that objectivity is/could be impaired

Question 3

Give two reasons why objectivity/independence matters

Answer 3

• users expect the audit to provide objective assurance (that directors can never provide on the financial statements)
• public interest - companies are public entities

Question 4

What is the approach to answering questions about independence?

Answer 4

• identify THREATS
• evaluate their significance and IMPACT
• identify SAFEGUARDS
• IMPLEMENT safeguards