To the majority of the public the words independence and objectivity may have little distinction between each other. Though when examined in regards to auditing, these two words are not synonymous and have a notable relationship with one another. The AICPA has laid the groundwork for the terms by providing extensive guides to help understand and apply the objectivity and independence guidelines set forth in the AICPA code of conduct. In my best general terms, “Independence” the notion that an auditor is free from any constraints that will inhibit the ability of the audit activity to carry out their duties in a completely unbiased manner.
While I would explain “objectivity” as being unbiased in a moral sense allowing auditors to conduct their work with an impartial approach that gives them confidence in the quality and method. As they may sound very similar, the relationship that these concepts have with one another is very important to understand. Would an auditor be able to remain objective if not being independent; or remain independent if not exhibiting objectivity? These thoughts will be the focus of the following narrative as well as further elaboration on the relationship and differences that these two words present to the auditing profession.
To begin, a better fundamental understanding of independence and objectivity and the factors that affect them is important. A deeper dive into what defines independence will show that it is rooted in both the impendence of mind and in appearance. Independence of mind is the state of mind that helps an auditor preform an effective service without being affected by extraneous influences that could compromise their professional judgment, allowing this auditor to act with integrity and professional skepticism. The AICPA explains Independence in appearance as avoiding any environments that would cause any knowledgeable third party on the outside looking in to conclude that integrity, objectivity, or professional skepticism of a firm or auditor to have been compromised.
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With these two points we see that independence isn’t all black and white. It could be possible for some negative influences to be present yet not reach the threshold of being a threat. We can also see that the factors and influence that affect independence are mostly structural in nature. Having a long audit tenure on a single client, a firm being financially dependent on an audit client, providing non-audit services to audit clients, as well as having restricted audit functions such as not having direct access to the board and management.
As for objectivity, the corner stone of this principle to remain free of conflict when preforming professional responsibilities. With objectivity being a monumental feature in the profession it forces the obligation for a professional to be impartial and intellectually honest. Conducting audit work with an unbiased mental attitude is essential and allows an auditor to perform their work with no preconceived opinions that may influence their work. For example, going into an engagement believing that the management is hiding something or that client is a dependent and probably knows what they are doing could lead to a bias when conducting work. Having a preconceived notion can lead to an unfair skew in recommendations and lead to unproductive work creating a load of problems going forward. That is why most factors that affect objectivity have more to do with emotional and attitude influence. These influences are things such as cognitive bias, social and professional pressures, personal relationships, and economic interests, among other factors.
Now with a greater knowledge of what these two principles entail and the differences between them we can begin to answer the question of if they can coexist with or without one another. After thoroughly analyzing the topics I would conclude that it is completely possible for someone to maintain independence and not be objective, and equally be possible to objective without having independence. The root of these possibilities lies in the difference in factors that could inhibit these principles. For maintaining independence while not being objective, it is possible for an engagement team to have a new client that they are not financial dependent on and have total freedom in audit activity, yet there could be professional and economic pressures that influence the auditors into conducting bias work.
In this scenario independence would be intact yet objectivity would be impaired. Equally, an engagement could have no preconceived notion, relationship, or bias, yet the client make up 70% of revenue for this firm thus it is in the best interest of the firm to do whatever it can to keep this client happy. There would be pressures that would make the engagement not independent from the client, they can still maintain objectivity and free of bias. These scenarios demonstrate that even in the absence of one it is possible for one principle to exist.
In conclusion, the AICPA emphasizes independence and objectivity as key points in its professional code of conduct. Both principles are important pieces to conducting audit work with integrity and professional skepticism. After examining how the AICPA defines the two ideas and determining which factors and influences could have a substantial effect on each of them we could see significant differences between the two principles. From these differences and evaluating the effecting factors we came to the conclusion that independence can exist when objectivity is impaired, as well as objectivity being able to exist when independence may not be present. Overall, practicing these fundamentals outlined in the AICPA code of conduct are an important cornerstone to the ethical nature of the audit industry.
Works Cited
- “AICPA Code of Professional Conduct.” AICPA, Revised code 15 Dec. 2014, https://pub.aicpa.org/codeofconduct/ Accessed: 15 Mar. 2020
