The European Federation of Accountants and Auditors claims there is no universal definition of auditor independence and it is impossible for auditors to exercise completely independent judgement when compiling financial statements.
These claims were made by the EFAA in a report on Auditor Independence published today in response to the current debate on auditor independence, and in response to an EC Green Paper of 1996 on auditor liability.
The report proposed a set of core principles, to limit the duties and responsibilities of auditors.
It called for limits to be placed on auditors to exclude them from directly executing any business transactions for the client, and all decision-making on behalf of the client, except in the case of counselling services relating to business transactions.
In addition, auditors should not be involved in collecting money or administrating financial transactions on the client’s behalf.
The report also suggested that auditors be wary of providing non-audit services to the client, especially in situations where the client already has staff to fulfill the necessary posts. In the case where he does perform non-audit services, the auditor must assess if there is a diminished ability to demonstrate independence.
The EFAA recommended an extension to the information published in financial accounts to include a description of all services offered as well as a statement by the client that they take full responsibility for all decisions taken.
Accordingly, auditors should have ‘profound knowledge, understanding and acceptance of societal expectations to auditor independence’, and the report said that these principals should be integrated into the education of accountants and auditors including those who had completed their tertiary training.
A recommendation on statutory auditors’ independence is due to become part of EU law by mid-2001.
Links
SEC releases finalised independence rules
EC pushes for stronger audit controls