Auditor Independence Literature Review

Chapter I
Introduction

I.1. Research Background
Professionalism, according to the Merriam-Webster Dictionaries, is defined as the conduct, aims, or qualities that characterize or mark a profession or a professional person. It is also defined profession as a calling requiring specialized knowledge and often long and intensive academic preparation. The definitions above imply that there are many characteristics that a professional should have such as, specialized knowledge, competency, honesty and integrity, accountability, self-regulation, and also image.
Those characteristics above can be accomplished if there is ethics. Many professionals of the same field form the association that will develop the professional ethic for the profession

Auditor Independence and Independence Commitment
According to Financial Times Lexicon, auditor independence can be defined as a reference to the independence of internal or external auditors from parties that might have financial interest in the business being audited. Independence is partly synonymous with honesty, integrity, courage, and character. It means that the certified public accountant will tell the truth as they see it, and will permit no influence, financial, or sentimental, to turn them from that course (Carey, 1946 cited in Scheutze, 1994)
There are two dimensions of independence:
 Independence in fact, which indicates that auditor possesses independent mindset in planning and executing an audit, and that is resulting in unbiased audit report (Dopuch, King and Schwartz, 2003, p. 84)
 Independence in appearance, where it can be obtained by auditor just to appear as independent.
Auditor independence is generally recognized as one of the central values or ideals that underlie the work and legitimacy of today’s public accountants (Levitt, 2000; Sikka and Willmott, 1995). Auditor also expected to be independence based on the Generally Accepted Auditing Standards (GAAS) in AU Section 150. In the general standards of the GAAS, stated that “The auditor must maintain independence in mental attitude in all matters relating to the

However, auditor independence nowadays has been seen as a product of regulation (Gendron et al., 2006). The auditor independence itself is defined by the Securities and Exchange Commission (SEC) which states that the accountant is not capable of exercising objective and impartial judgment on all issues encompassed within the accountant 's engagement. It also states that the commission is allowed to examine all relevant circumstances, including all relationships between the accountant and the audit client (Macey and Sale, 2003). Not only by SEC, the courts in North America also clarified the type of relationships between auditor and clients that can compromise the auditor independence (Grendon et al., 2006). The view of having the auditor independence as regulation product, however, contrasts with the tradition of character and idealism where ethic regulation in professional ethics is largely unnecessary and the ethical standards mainly serve as general reminders of features of the correct character of individuals (Preston et al.,