An administration is required, by statue or specific Torahs, to hold its fiscal statements audited by either an internal or external hearer. An internal hearer is responsible for supplying independent and nonsubjective appraisals of the administration ‘s fiscal and operational concern activities, including its corporate administration. On the other manus, the external hearer ‘s responsibility is to show an sentiment on whether the fiscal statements show a true and just position, which is the chief intent for their assignment by the stockholders. The construct of true and just position, harmonizing to Kershaw ( 2006 ) means conformity with applicable and relevant accounting criterions. The responsibility of the external hearer is to increase the assurance of the stakeholders in the fiscal information included in the fiscal statements, to give a sensible averment that the fiscal information is free from mistakes and presented in conformity with the accounting criterions and with the general accepted accounting rules ( GAAP ) . Besides harmonizing to Deegan et Al. ( 2011 ) the external hearer is responsible for the confirmation of the fiscal statements and study that they are dependable and correct for the intents of determination devising. In an audit, the fiscal statements are evaluated by the external hearer, who is nonsubjective and knowing about scrutinizing, accounting, and fiscal coverage affairs. In order to execute an audit of an entity in the best possible mode, the external hearer demands to possess the feature of independency which is cardinal for the look of an indifferent and independent audit study. As stated by Wines ( 2011 ) , the external hearer demand to be independent since the latter reviews the fiscal statements on behalf of the stockholders which should be done without impartially and without prejudice.
Meaning of independency
Independence helps to transfuse assurance in the heads of stakeholders, most peculiarly the stockholders, that the audit was performed in the most effectual mode and that the fiscal statements are free from material misstatements and that they show a true and just position. Harmonizing to Knapp ( 1985 ) , auditor independency refers to the ability and willingness to defy client force per unit area. Likewise the Independence Standards Board ( ISB ) ( 2000 ) defined auditor independency as the:
aˆ¦ ” freedom from those force per unit areas and other factors that via media, or can moderately be expected to compromise an hearers ‘ ability to recognize indifferent audit determinations ” .
Furthermore hearer independency has been evaluated based on two criterions, which are, fact and visual aspect. Independence in fact refers to the existent nonsubjective province of the association between scrutinizing houses and their clients. Church and Zhang, ( 2002 ) stated that independency in fact, is indispensable to heighten the dependability of fiscal statements. Besides independency in fact elaborates that the external hearers are required to show an sentiment on the dependability and trust worthiness of the fiscal statements as a impersonal and professional perceiver, unaffected by personal prejudice during the audit battle. Independence in visual aspect on the other manus, refers to the subjective province of that association as seen by clients and 3rd parties ( Arens et al. ( 2006 ) and Whittington and Pany 2004 ) . Furthermore, the South African Institute of Chartered Accountants ( SAICA 2010 ) evaluated the independency in visual aspect as the turning away of facts and state of affairss that are so of import that a sensible 3rd party would be probably to reason, sing all expressed facts and state of affairss, that an administration, or member of the audit squad ‘s, objectiveness or professional incredulity has been compromised. Furthermore, independency in visual aspect expects hearers to avoid fortunes that might take others to find that they are non continuing an impartial, nonsubjective province of head ( Porter et al. , 2003 ) .
The hearer is presumed to hold no motive related with fiscal statements to be dishonest, the external hearer is assumed to be independent of both the organsiation being audited and of its directors. Auditor independency means a deficiency of fondness in set uping opinions, so that the hearer can be employed to describe on the dependability of the administrations ‘ fiscal statements ( Mautz and Sharaf 1961 ) . Independence is the lone proof for the endurance of accounting houses that provides external hearers ; if it were non for the averment of independency, there would be no ground for external hearers to be, since their intent would be terminated with that of a house ‘s internal hearers ( Moore et al. 2006 ) . The ISB ( 2000 ) defines independency as freedom from force per unit areas and other factors that weaken, or are seen to weaken, an hearer ‘s willingness to exert objectiveness, unity and neutrality when transporting out an audit.
Furthermore, independency can be described as an look of professional unity of the external hearer. Independence necessitates turning away of fortunes which would be given to weaken objectiveness or license personal prejudice to impact the sentiment of the external hearer. ( Hemraj, 2003 ) .