The responsibilities of external auditors are not always well understood, especially with regard to the detection and reporting of fraud. When external auditors provide non-audit services to their audit clients, it is essential that the auditors make a clear distinction between their audit and non-audit responsibilities. Required: explain why it is essential for external auditors to be independent of their clients

External auditor independence

  •  External auditors are unable to fulfill their duties to shareholders if they are not independent of the entity on which they are reporting.
  •  If external auditors have an interest in the financial statements on which they are reporting, they may not be objective. For example, if, in the case of a listed company, they have prepared the financial statements on which they are reporting, their view may not be considered objective.
  •  If they have financial or employment connections with the company on which they are reporting they will not be objective.
  •  If they provide a significant level of additional services to the entity, it is argued that they cannot report objectively as auditors to shareholders.
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