Independence of Audit Statement

International Auditing Standards (NZ) place great emphasis on the independence of an auditor from the entity being audited. CCA complies with Professional and Ethical Standard 1 (Code of Ethics for Assurance Practitioners).

The Standard acknowledges that threats to independence need to be mitigated to an acceptable level, but can often not be entirely eliminated.

CCA often performs other work for audit clients. Although corporate members of some professional accounting organisations such as Chartered Accounting Australia/New Zealand (CAANZ) are not permitted to perform any other work for audit clients, International Auditing Standards only ask to evaluate the threat to audit independence arising from this, and to mitigate this threat to an acceptable level if identified. Two threats identified in PES1 are relevant to this situation:

1. Self-interest threat.

This is the key threat that led to some professional accounting bodies banning its members from undertaking any other work for an audit client. Auditing and accounting are high-end professional services incurring high fees, and PES 1(410.3) identifies undue dependence on total fees from an assurance client and concern about the possibility of losing the engagement as concerns, as well as a direct involvement in the audit client. In other words, it is very difficult to issue an independent audit report if the result may endanger your livelihood!

CCA is in a unique position in that a large share of our income is derived from non-client sources. No individual client creates any dependence, and losing any individual client would not make any financial difference. This lack of significant financial interest in our audit clients represents a strength of CCA that no commercial accounting firm or accountant can provide.

Where we provide other services to that same client, these services are often free.

2. Self-review threat.

This is essentially the threat of ‘selective blindness’ when auditing your own work, such as excluding certain areas from an audit because one’s own work is assumed to be correct. PES 1 lists a number of situations that would create an undue self-review threat. S. 601.5 specifically refers to the situation where a firm provides both the assurance engagement (audit/review) and compiles the financial statements or provides bookkeeping services. This is not prohibited, but the self-review threat must be mitigated.

For all but the smallest organisations, we actively mitigate the risk by

– separating the audit role from other accounting services for that organisation (PES 1, s. 601.5 A1)

– following a prescribed audit procedure from which no areas can be omitted.

– another person within CCA not involved with the audit client at all providing quality control (depending on overall audit risk).