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2.1 Introduction
2.2 Academic Contribution and Professional Exploration
In the early 1960s two US writers, Mautz and Sharaf, published a highly influential book1 creating a philosophy of auditing.
Mautz and Sharaf used their postulates to develop five primary concepts (ideas) which they regarded as essential to
explaining the processes of auditing:
1) Evidence, 2) Due audit care, 3) Fair presentation, 4) Independence 5) Ethical conduct
Writing in the UK in the 1980s, Flint examined the audit function from the perspective of society generally and asked what
the role of accounting in society was. Flint used these seven postulates as a basis for defining audit as a social
phenomenon. He saw three main branches of audit theory: 1) Authority and independence, 2) Evidence and reporting, 3)
Standards of performance.
In the Netherlands, Limperg in 1932 wrote his Theory of Inspired Confidence. Later, in 1985, he explained that this theory
rested on the opinion that the accountant is obliged to carry out his work in such a way that he does not betray the
expectations which he evokes in the sensible layman.
2.3 Independence
2.3.1 Mautz & Sharaf distinguished between practitioner independence and professionindependence.
a) Practitioner independence = Programming ind + Investigative ind + Reporting ind
Programming independence protects the auditors ability to select the most appropriate strategy for the audit work. Investigative
independence protects the manner in which the auditors implement their planning strategy. Reporting Independence is
essential aspect of the auditors independence that there is direct communication with the shareholders of the company.
b) Profession independence: The profession of auditing is organised through professional bodies. These bodies serve two main
purposes. One is to maintain the highest standards of audit work in serving the client and the public interest but the other is to
serve and protect the interests of their members.
2.3.2 Flints view of independence: He referred to the mental attitude of the individual and to the public belief in independence.
Flint proposed that personal qualities of integrity and strength of character are essential.
2.3.3 Factors affecting independence: IAASB Code of Ethics, 2004
(a) Independence of mind the state of mind that permits the provision of an opinion without being affected by influences that
compromise professional judgment, allowing an individual to act with integrity, and exercise objectivity and professional
skepticism; and
(b) Independence in appearance the avoidance of facts and circumstances that are so significant a reasonable and informed
third party, having knowledge of all relevant information, including any safeguards applied, would reasonably conclude a firm s,
or a member of the assurance team s, integrity, objectivity or professional skepticism had been compromised. (IAASB Code of
Ethics, 2004)
2.3.4 Guidance from the Auditing Practices Board
In the UK an ethical guide for auditors has been issued by the Auditing Practices Board in the form of a series of ethics
statements, taking effect from 2004. (Ethical Standard 1,2,3,4 and 5)
General threats to objectivity are seen in the following matters:
The self-interest threat The self-review threat The management threat The advocacy threat The familiarity or trust threat
The intimidation threat
Safeguards against above threats
Safeguards are provided through professional bodies (code of ethics, training, knowledge, standards, etc.)
ES1 Recommendations are 1) Review of partner 2) Ways of communicating with people who are in charge of governance 3)
Appointment of Ethics Partner 4) Having adequate control policies and procedures which are properly documented and
applied, 5) Rotation of engagement partner and staff, 6) Professional training
2.3.5 Parliamentary legislation
2.3.6 Audit independence and corporate governance The Cadbury and Hampel Committee
2.3.7 Audit committees: The audit committee should comprise at least 3 directors, all non-executive. The audit committee
should keep under review the scope of the audit and the independence and objectivity of the auditors.