When choosing an auditor, key factors include the auditor's independence and whether they have the industry knowledge to complete the audit successfully. Here we consider the advantages of using an independent auditor.

Why is auditor independence important?

The independence of auditors is the core of the auditing profession. Receiving a reliable, ethically sound and independent audit builds a company’s credibility and enables the public to trust the accuracy of the audit.

Problems can arise when an auditor has conflicts of interest and is not truly independent. This can include providing other services to the company that can cloud the audit's objectivity. For this reason, an auditor not connected with the business in any way – including providing other services – will not have any conflicts of interest, including non-financial ones, when conducting the audit. 

Research shows that economic bonds between the auditor and the client can potentially compromise audit and non-audit relationships. The fear of losing revenue from an unfavourable opinion can impair the independence of auditors. In addition, providing consulting services to the client as well can bias professional judgement as the auditor is reviewing the work of their firm, even though it’s a separate division. Auditors could be motivated to conceal or ignore errors related to consulting services to protect the reputation of the auditing side of the firm. 

What makes an auditor independent?

A truly independent auditor will have no financial interest in the organisation or business being audited. Independence also includes avoiding non-financial conflicts of interest. For example, if the same firm auditing a company provides accounting or consulting services to that business, auditors could be hesitant to raise questions or criticise how these services are delivered. 

The importance of audit quality

Like with any other business service, the quality of audits can vary. But the quality of an audit will determine whether an organisation can provide a true and fair view of its financial performance. A quality audit that ensures accounts are materially correct is vital for any organisation that relies on management information. A high-quality audit can be an effective management tool to verify processes and determine how successfully they have been implemented. It can also reveal the organisation's effectiveness at reaching targets and provide insights for preventing or eliminating problems. All too often, we hear about the results of ineffective audits in the press when an underlying problem was not uncovered or hidden, resulting in financial or reputational damage or the complete ruin of an organisation. 

Research published in 2020 suggests a strong connection between auditor independence and audit quality. Another study released in 2019 revealed that auditor independence has a strong positive effect on audit quality.

LNP Audit + Assurance - An Independent Audit and Assurance Firm

The research is very clear: independent auditors are better at delivering unbiased, efficient and effective auditing services and LNP Audit and Assurance ticks this box!

Unlike larger conglomerate firms, we are a dedicated audit and assurance firm that only performs audits and related work. We don’t provide accounting, consulting or other services that could pose a conflict when conducting an audit. Being an independent auditor, we choose the best-in-class non-audit service partner firms to assist with particular client requirements (whether accounting related or otherwise) in specific locations and service areas. This way, we avoid potential conflicts. 

Our team has knowledge and experience in all types of industries – from large multinational groups and publicly listed companies to CFD and Forex brokers, financial services companies and a wide range of other businesses. This enables our auditors to avoid potential pitfalls. Using our significant expertise and reputation with regulators and markets adds value to all stakeholders throughout every engagement. Some of these areas include:

• Fast growing enterprises

• Small and medium listed companies

• Multinational groups

• Manufacturing

• Retail and distribution

• General insurance

• Not-for-profit enterprises

• Mining and exploration

• Financial Services – around 80 AFSL holders and CFD/FX brokers.

In delivering audit and assurance services, we provide a range of benefits, including:

• Maximising quality and assurance while focusing on deadlines

• Focusing on risks by targeting our effort to key areas to minimise risk and maximise assurance 

• Working efficiently and transparently with clients by being 100% cloud-based 

• Saving time by giving our clients easy access to senior people in the firm to deliver flexibility and less disruption 

• Focusing only on audit and assurance work with a commitment to the needs and aspirations of our staff and clients.

Get in touch to discuss your audit challenges

LNP Audit and Assurance is one of Australia's largest independent audit and assurance firms. We work with a diverse range of clients – start-ups, SMEs, businesses seeking to list, and small listed groups – in delivering independent audit and assurance services. 

If you have questions for your next audit or are looking for quality audit and assurance services, contact LNP Audit and Assurance today.