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The Enron Scandal: The Social Value Of Auditing

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One of the audit theories considers the social purpose of audit and states that the audit work should be governed by the rational expectations of those who use the auditor’s reports and financial statements, and that the auditors should not disappoint those expectations (Limperg,1926). This then implies the degree of reliability of the auditor’s report. Cases like the Enron Scandal have put the profession in the limelight, negatively impacting the public perception of auditor’s independence and the overall value of auditing. Apparently there is a gap between what the public expects and what it actually gets, the expectations gap. The expectations gap exists when the auditor and the public hold different beliefs about the auditors responsibilities …show more content…

Audit independence is independence from parties that have an interest in the financial statements of the reporting entity. Audit independence is an attitude of mind characterised by integrity and an objective approach to the audit process (Baker, 2005). The auditor’s independence is the cornerstone of the auditing profession as it is the foundation of the public’s trust in the audit work (Lindberg and Beck, 2004). The auditor’s independence is also a crucial in the statutory reporting process and it’s a key prerequisite for adding value to the audited financial statements (Mautz and Sharaf, 1961). The purpose of an audit is to enhance the credibility of financial statements by providing written reasonable assurance from independent sources that the financial statements present a true and fair view in accordance with the accounting standards. This objective will not be met if users of the audit report believe that the auditor may have been influenced by other parties, more specifically the enterprise managers/directors or by conflicting interests (A.O.Oladipupo, F.I.O. Izedonmi, 2013) There are three main ways in which the auditor‘s independence can manifest itself: Programming independence, investigative independence and reporting …show more content…

When providing service to the client, an audit firm receives remuneration from the client, resulting in auditors being financially bonded to the client (DeAngelo, 1981a). The economic bonding between the auditors and the clients may make auditors passive and the auditor will not be able to stand independent to confront the directors who negotiate audit contracts with the auditors. It has been observed that the more economically dependant the auditor is on the client, the more the auditor will succumb to client pressure (Nelson et al, 2002) .Hence, so long as the client determines audit appointments and fees an auditor will never be able to have complete economic independence (A.O.Oladipupo, F.I.O. Izedonmi,

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