Auditor independence: third party hiring and paying auditors

Abstract

Purpose -Although the Sarbanes Oxley Act (SOX) has introduced rules to avoid auditor independence impairment, there are still issues that are not sufficiently solved. The purpose of this paper is to discuss the problems of auditor independence that arise by auditors being hired and paid by the auditee, and by SOX requiring rotation of only the lead audit partner. Design/methodology/approach -The paper takes the form of a discussion paper, exploring alternatives to overcome the mentioned issues of independence. Findings -The paper presents an alternative where auditors are hired and paid by an external third party. Besides this change, it also proposes a quality control system including the extension of the CPE program. A private entity in representation of the investors (e.g. Stock exchange) and an oversight board (e.g. PCAOB) as alternatives to hire, pay and control audit quality are discussed. Practical implications -This paper has implications for regulators, since it presents a new alternative for hiring and paying auditors that requires an active involvement of an independent third party. It also has implications for professional bodies by increasing their participation in monitoring and training its members. Originality/value -The paper presents an original alternative for avoiding independence issues derived by auditors being hired and paid by the auditee, and opens a discussion in a new solution to an old problem.

Does Auditor Objectivity Impact on the Relationship Between Information Technology and Efficiency and Effectiveness of Auditing: Evidence from Iraq

“…With regards to the relationship among the study variables, Romero's (2010) evidenced a positive relationship between minimized auditor objectivity and his minimized efficiency and effectiveness, while increased objectivity leads to improved efficiency and effectiveness. This finding was supported by Kueppers and Sullivan (2010) stressed on the importance of auditor objectivity in enhancing performance, in that objectivity brings about effective implementation of quality auditing.…”

“…It is known that IT increases the auditors' objectivity and improve their productivity (Zhao et al, 2004), and this supposition lead us to hypothesize that: H2 : Iinformation technology has a positive effect on Auditor objectivity. Romero (2010) reported a positive relationship between minimized auditor objectivity and minimized efficiency and effectiveness, while increased objectivity leads to improved efficiency and effectiveness. This was also posited by Kueppers and Sullivan (2010), who outlined the importance of auditor objectivity towards improving performance, where objectivity results in the effective implementation of the audit process.…”

Corporate Governance and Auditor Independence in Saudi Arabia: Literature Review and Proposed Conceptual Framework

“…In literature, different definitions of auditor independence have been proposed (Romero, 2010). For instance, DeAngelo (1981) defined the term as the conditional probability of reporting a noted error, while Carey and Doherty (1966) explained the importance of an accurate definition of the term independence as semantic issues arise when the definition of terms is lacking.…”

Exploring Variability Among Quality Management System Auditors When Rating the Severity of Audit Findings at a Nuclear Power Plant

“…Despite the positive endorsement in the literature, auditors are still perceived as the 'organisational watchdog', according to Romero [10]. However, numerous sources -including Vanasco [11]; Fadzil et al [9]; Robitaille [6]; Deribe and Regasa [12]; and Rajendran and Devadasan [7] Similarly, Keogh [13] perceived the role of the QA practitioner as vital in detecting defects and faults in business processes in order to correct and improve overall performance.…”