It encompasses all threats to and organization’s goals and objectives. 1980) "A number of articles have been written about crisis management issues by researches and practitioners in diverse type of developments and environments which make it difficult to understand and becomes an objective to the public". Here the individual develops the courage to follow through with his/her moral action. If users of financial statements are to believe and rely on the auditor’s opinion, it is essential that the auditor is, and is perceived to be, independent of the entity and its management. Before an audit engagement, it is crucial that each member of the audit team review the five threats to independence. International Financial Reporting Standards. Specifically, it sets out the overall objectives of the independent auditor, and explains the nature and scope of an audit designed to enable the independent auditor to meet those objectives. ISA 200 deals with the independent auditor’s overall responsibilities when conducting an audit of financial statements in accordance with ISAs. James Rest (1982) built on Kohlberg’s work by developing a four-component model of the ethical decision-making process which describes the cognitive processes individuals (as cited in Bebeau 2002). . This paper highlights the challenge managers’ face in their daily routine of making profit while keeping in line with the required ethical boundaries of hospitality and tourism industry. As such, it relieves the Board from detailed involvement in the review of result of audit activities. & Maclochlainn, N. p.19). Get Essay ... More important, this standard of proof falsely assumes that the most common threat to auditor independence is intentionally corrupt behavior. Introduction Concerns are shown towards both the competence (discovering a problem or making a correct judgment) and the independence (disclosure of the problem by the auditor) of the accounting firm (Duff, 2004). The threat of dismissal is the fundamental self-interest threat for an auditor as it leads to loss of face for the firm and very probably for the partner as well. Many Organization have faced or will face the decision to downsizing their work force. Auditor independence has long been regarded as a cornerstone of the auditing profession (AICPA 1999; SEC 2000). One of the main reason organization fail to successfully implement SCM is because the organization fail to link between SCM dimension and the organization's performance.Sink and Tuttle (1989) claim that you cannot manage what you cannot measure. Experimental studies have found that the individual auditor’s level of ethical cognition has a significant impact on audit decisions. Sutton and T.D. -To highlight the importance of auditor independence and how it is fundamental to public confidence in the audit process. - To determine the actions taken in Mauritius to ensure confidence in auditors’ work to the public by manipulating audit quality, audit failure, earning management, the audit process as a whole. Ethical Rules), one’s level of moral development is measured by the Defining Issues Test (DIT) with the P score measuring one’s propensity to reason at the post-conventional stage. Auditors with a higher level of moral reasoning are more likely to reveal audit finding which management does not wish to be revealed regardless of reprisal. According to the UK, European Commission, Australia, IFAC as well as Mauritius framework there are four safeguards against these threats are identified (Vivien Beattie and Stella Fearnley, September 2002, "Auditor Independence and Non-Audit Services): regulatory safeguards and sanctions either emanating from legal or professional requirements e.g. 1987; Blay 2005); fee pressure (e.g., Houston 1999; Gramling 1999), client retention incentives (e.g., Lord 1992; Trompeter 1994; Chang and Hwang 2003), economic benefits contingent on specific actions (e.g., Schatzberg and Sevcik 1994; Beeler and Hunton 2002), and other client-related and engagement pressures (e.g., Hackenbrack and Nelson 1996; Haynes et al. It is argued that poor outcomes arise where the safeguards are insufficient defence against the threats thus increasing independence risk and also incentives also influence an auditor. Threats to Independence Independence "in fact" (or actual independence) and "in appearance" (or perceived independence) is two types of auditor independence. Pany and Whittinton (1997), Gupta(1999), ICAN (1999), ISB (2000), (Myring and Bloom, 2003), Aquaisua (2004) and Okolie (2007) identify some of these threats which include undue dependence on a client; overdue fees; actions or threatened litigations; family or other personal relationships; beneficial interesting shares and other investments; beneficial interests in trusts, loans, voting on audit appointments; acceptance of goods and services as gifts or hospitality; and provision of other services to audit clients. If accounting is the language of business it is the auditor’s job to see the language is used properly so that relevant material is communicated properly, (Duska R, 2005). An auditor who has a lack of independence or has threats to auditor independence, his audit report useless to those who rely on it. Experimental research has documented that auditor judgments can be impacted by incentives which, in turn, can negatively or positively influence the quality of the audit process. The independence of these auditors must be safeguarded during each engagement. Self-review threats are a threat when auditor realizes the consequence of past judgment and advice by himself or other staffs of the firm. In this industry; business ethics and standards normally differ in relation to the environment and time the services are being offered (Joseph Weiss, 2008, Pg, 78).This creates about of challenges the mangers have to deal with to keep in line with the required ethical principles as they try to make profit. quality control and documentation, identification of threats, availability of consultation procedures, internal reviews by independent partners, division of responsibilities, training, staff development, ethical standards, etc. 2001. Ponemon & Gabhart (1990) found that the independence judgments of auditors with low DIT P scores were significantly influenced by penalty factors, such as the threat of legal liability, whereas auditors with high P scores ranked this as the least important consideration. People are taught the professional behavior; integrity, objectivity and independence. Thus, the provision of auditing and non-auditing services to the audit client would generate potential and real threat to audit independence. The relative importance of each of these threats varies based on the details of the individual audit firm-client relationship, but most of the threats exist in every auditor-client arrangement. governance procedures in the company, particularly the audit committee; where the safeguards are not considered sufficient the auditor can refuse to act. However, the quality of an auditor’s judgment is also influenced by pressures emanating from the firm itself. The third essay aims to examine the effect of client intimidation on auditor independence in an audit-client conflict situation. . trust or familiarity threats: this arises from auditors becoming over-influenced by the personality and qualities of their clients’ directors and/or senior managers and consequently too sympathetic to their interest. The link between auditor independence and audit risk is closely linked. But a more drastic step would be to require rotation of audit firms at regular intervals (say every five years). M & Clark. According to (Kelley, H.H. The very fact that it attracts so much attention would indicate that auditors, independence is difficult to maintain. The government of Mauritius often requests for a Report on Observance of Standards and Codes, Accounting and Auditing Review (ROSC A&A) which focuses on the institutional framework underpinning the accounting and auditing practices in the country. Theses occur when the auditor possesses a personal, family, or professional relationship with the client. auditor independence. [But] the willingness of investors to continue to invest … cannot be taken for granted. -To reflect how risk and independence are linked. It effectively links supply chain partners to achieve breakthrough performance in satisfying end-customer needs and provide feedback regarding customers’ needs and the supply chain’s capabilities (Wisner, Tan & Leong, 2008).Indicators of supply chain performance have an important role to play in setting objectives, evaluating performance, and determining future courses of actions (Lee, Kwon & Severance, 2007). These pressures can arise from immediate supervisors on the audit team or the overall evaluation process used by the firm. Be that as it may, business visionaries don't esteem their participation in a formal relationship on the premise of a common vision (Miller, Besser, and Malshe, 2007). Three are different threats that occasion impairment on auditor’s objectivity such as the self-interest threats that include financial and personal interests (Basu, 2009). Auditor’s Independence. Based on individual’s ethical development which influences judgment and work, Kohlberg (1958) defined ethical development as the ‘Cognitive Moral Development’ (CMD) of the individual, governing the thought and knowledge processes involved in deciding about what is right or wrong. 2. Talking about a threat to independence, Rusmanto (2017) refers to any possible circumstance that may end up impairing the professional judgment of an auditor. When organization decided layoff. According to Terri L. Herron and David L. Gilbertson (June 2003: Ethical Principles vs. Part 2: The impact of both auditor independence and audit risk on the main elements related to an audit work; audit quality, audit failure, earning management and the audit process, to ensure confidence for the public interest. Antecedents and consequences of independence risk: framework for analysis). This research enables us to investigate the relationship between independence and audit risk as well as ethical cognition and auditor independence and the role of the regulatory framework in influencing individual auditors as well as safeguard the trust of the public. Familiarity Threat. The objective of auditing has been given by International Standards of Auditing (ISA) 200; Overall Objectives of the Independent Auditor and the Conduct of an Audit in accordance with International Standards on Auditing. The literature shows that there are several situations that can potentially threaten auditor independence. Codes of ethics are normally designed to motivate members of professional organisations to operate in an ethical manner. Businesses have specific regulations that are laid down for specific processes like procurement. Reference 7 Some of the suggested safeguards have already been implemented in many countries including Mauritius, such as restriction on other services, rotation of auditors and user education. Client's fees to auditors that are contingent upon specific opinions can, if allowed to occur, result in the auditor's financial interests becoming dependent upon whether audit judgments coincide with management's preferences. ... managing threats to internal auditor objectivity. Part 1: This assignment examines whether an appropriate accounting framework and ethical code of professional conduct effectively enhances auditor independence. According to the Australasian Accounting Business & Finance Journal, Loh & Wong: Matching the ‘Knowing What to do’ and the ‘Doing What you Know’ in Ethical Decision Making (October 2009), a study was carried out and this indicates that the existence of a penalty for unethical behavior does seem to increase the likelihood for ethical behavior, with the numbers showing more percentage of accountant moving from an unethical choice to the ethical choice in their actual course of action. "At the heart of the audit profession is a belief about human nature. The issue of auditor’s independence has always been an important public concern and a matter of many debates, especially because of the fiduciary role played by the auditors in modern society. From different angles depending on what they perceive as major influence on auditor... Decision to downsizing their work force an audit-client conflict situation will speak truth. 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