Abstract
This project work titled “the impact of conflicts of interest on the auditor’s independence” using a price water house coopers as a case study, examines specifically the concepts of independence and conflicts that may arise when it is lacking. Independence are identified and discussed on how to manage threats. The primary and secondary sources of data were used in gathering information for the success of the project work.
It was discovered that auditor’s conflict of interest greatly influence the auditor’s independence. It was concluded that the conflicts of interest exists from the auditor to the structures that govern the industry, the institutions and legislation. Finally, it was recommended that auditors should be chosen not by management of the company, but by the committee which should comprise of the Board of Directors (BODs).
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Conflict of interest and auditor’s independence are two concepts that must be considered properly in this project work. If there is any way auditors’ conflict of interest affects his independence.To start with auditor’s conflict of interest according to Andrew (2004) is a setting where an auditor trade off the influence and been biased of his report. There are two types of conflicts of interest in this regard. They are conflict where auditor earns reward from a third party between form and clients interest and conflict between the interests of two or more client e.g. where an auditor or audit team has a long term relationship.
While auditor’s independence refers to as the independence of the auditor from parties that have an interest in the financial statement of an entity.This usually safeguard the auditor’s integrity and also an objective approach to the audit process.It is obvious that there is auditor’s conflict of interest i.e. either of the two types of conflict of interest, there is usually auditor trade of the influence and been based that could make auditor not given accurate report, and then affect auditor independence.The definition of auditor and auditor’s independence over the decades, have evolved along with accounting profession itself the concept independence was considered of great importance, and the focus was am elimination of conflict of interest that arose from financial relationships between auditors and their clients.
The twin sides of a coin are the concept of audit and the concept of independence. The auditor who has lost his independence has lost his reason, he has become a dependent auditor and will be in conflict of interest with his clients. Independence remains as crucial an issue as it was in the nineteenth century, and is still required to be demonstrated.