What is Auditor Independence?

Auditor independence is the ability of a person conducting an audit to do so autonomously and with integrity. Auditors must be able to review material objectively and come up with a neutral, accurate, and honest report on the outcome of their investigations. When auditors lack this objectivity, it can compromise the value of the audit and may expose people to risks. Many nations have laws concerning auditor independence and regulatory agencies may conduct audits and investigations of their own if they have concerns.

To be independent, an auditor must not have a vested interest in the outcome of the audit; for the auditor, nothing hinges on the final conclusion. The ability to decide on the best approach and implement it, as well as having free access to any necessary materials, is an important aspect. Furthermore, auditors must be free to write up their findings in full detail, without an obligation to conceal or obscure information.

One barrier to auditor independence is the fact that auditors are paid by the people they are auditing, in most cases. This can interfere with objectivity, especially in the case of a big, repeat client. A bad audit might lead the company to stop using that auditor, or could force a company out of business, and there is a clear disincentive for auditors to cut off available sources of income. This might lead an auditor to be less than scrupulous in the process of investigation and reporting. Requiring auditors to have numerous income sources can help with this problem by ensuring that the loss of a client will not cause an auditing firm to collapse.

Auditor independence can also be clouded by holding shares in a company or investing in it in other ways. Auditors must be able to provide proof of financial independence. If someone who works for an auditing firm has a conflict of interest, that person must ask to be excused from an auditing project. The presence of someone with connections to a company on the auditing team can compromise the outcome of the audit and undermine faith in other audits performed by that company.

Independent auditors serve an important role at companies large and small, ranging from corporations to nonprofits. Laws mandating auditor independence boost consumer and donor confidence by keeping companies accountable and creating a clear mandate for the use of fully independent, neutral auditors who can provide objective and fair evaluations of their clients.