Independence Day commemorates the United States’ formal declaration of freedom from British rule, which occurred with the signing of the Declaration of Independence on July 4, 1776. As our nation celebrates its liberty, it’s a fitting time to reflect on the important role that independence plays in public accounting, specifically in the realm of auditing.
The American Institute of Certified Public Accountants (AICPA), the Public Company Accounting Oversight Board (PCAOB), and the Securities and Exchange Commission (SEC), along with various other regulating bodies, each have standards set in place to ensure that audited financial statements are prepared and presented accurately, and without bias. This lack of bias is referred to as independence.
According to the AICPA, independence has two aspects: your personal mindset and the way an action appears to others. Independence of mind permits you to perform an attest service without being affected by influences that compromise professional judgement. Independence in appearance means avoiding circumstances that would cause a third party to reasonably conclude that you or your firm’s integrity, objectivity, or professional skepticism is compromised.
What Is Audit Independence?
In layman’s terms, there may be no strings attached between the auditor and the entity being audited that would impair the auditor’s ability to issue an unbiased opinion and/or would impair the public from trusting that the auditor is providing an unbiased opinion.
To maintain independence, auditors are prohibited from providing a variety of services to an audit client, including bookkeeping, valuation or actuarial services, internal audit or management functions, or legal services. However, the auditor is permitted to perform certain nonattest services, provided that there are safeguards in place to reduce the independence threats to an acceptable level. Commonly permissible nonattest services include financial statement and tax preparation services.
Why Is the Independence Standard Important?
Independence facilitates integrity, objectivity, and professional skepticism that are necessary in financial statement preparation. This level of trust bolsters the reliability of the statements which are leveraged by stakeholders to make business decisions.
The purpose of an audit is to provide assurance that an entity’s financial statements are presented fairly, in all material respects, in accordance with generally accepted accounting principles. Without independence, it would be impossible to trust an audit report – rendering it useless.
To learn more about GYF’s audit services and our protocols to ensure independence, please contact us at 412-338-9300. Happy Independence Day!
