Auditing refers to a systematic and independent examination of books, accounts, documents and

vouchers of an organization to ascertain how far the financial statements present a true and fair view
of the concern. It also attempts to ensure that the books of accounts are properly maintained by the
concern as required by law.
Types of audit

Role of auditor

The Important Role of the Auditor

Auditors play an important role in the ensuring the integrity and reliability of the financial
statement for public companies. Recently (in the United Sates especially) the
independence and objectivity of auditors has been a major concern, and has been
brought to the forefront. A new rule was then proposed to deal with these concerns. This
eventually led to the adoption of new requirements that must be followed by auditors in
the United States. Many user groups had economic consequences at stake and lobbied
the Securities and Exchange and Commission (SEC) to what they believed would be
the best solution. This was mostly performed through submitting comments to the SEC
and through participating in the public hearings held by the SEC to allow discussion on
the proposed rule.
This report will briefly describe independence as it relates to accounting profession,
identify and describe the new requirements presented by the SEC and then describe
the events and circumstances that led to the new requirements being proposed. It will
also describe and assess the validity of the concerns that were stated at the various
public hearings by the affected user groups. First a simple but important definition of
independence and how it relates to the accounting profession will be presented.

"Independence is generally understood to refer to a mental state of objectivity and lack

of bias." An auditor must perform the audit without allowing external factors to alter or
effect his or her decisions. Douglas Carmichael goes on to relate independence to an
auditor directly by stating "the auditor must be without bias with respect to the client
since otherwise he [or she] would lack that impartiality necessary for the dependability
of his [or her] findings, however excellent his [or her] technical proficiency may be." This
definition looks easy to interpret but it becomes hard to determine when an auditor is
acting independently.

Importance of audit

Business Objectives
Having an effective audit system is important for a company because it enables it to pursue
and attain its various corporate objectives. Business processes need various forms of
internal control to facilitate supervision and monitoring, prevent and detect irregular
transactions, measure ongoing performance, maintain adequate business records and to
promote operational productivity. Internal auditors review the design of the internal controls
and informally propose improvements, and document any material irregularities to enable
further investigation by management if it is warranted under the circumstances.

Risk of Misstatement
Auditors assess the risk of material misstatement in a company's financial reports. Without a
system of internal controls or an audit system, a company would not be able to create
reliable financial reports for internal or external purposes. Thus, it would not be able to
determine how to allocate its resources and would be unable to know which of its segments
or product lines are profitable and which are not. Additionally, it could not manage its affairs,
as it would not have the ability to tell the status of its assets and liabilities and would be
rendered undependable in the marketplace due to its inability to consistently produce its
goods and services in a reliable fashion. Accordingly, an audit system is crucial in preventing
debilitating misstatements in a company's records and reports.

Business Objectives
Having an effective audit system is important for a company because it enables it to pursue
and attain its various corporate objectives. Business processes need various forms of
internal control to facilitate supervision and monitoring, prevent and detect irregular
transactions, measure ongoing performance, maintain adequate business records and to
promote operational productivity. Internal auditors review the design of the internal controls
and informally propose improvements, and document any material irregularities to enable
further investigation by management if it is warranted under the circumstances.

Risk of Misstatement
Auditors assess the risk of material misstatement in a company's financial reports. Without a
system of internal controls or an audit system, a company would not be able to create
reliable financial reports for internal or external purposes. Thus, it would not be able to
determine how to allocate its resources and would be unable to know which of its segments
or product lines are profitable and which are not. Additionally, it could not manage its affairs,
as it would not have the ability to tell the status of its assets and liabilities and would be
rendered undependable in the marketplace due to its inability to consistently produce its
goods and services in a reliable fashion. Accordingly, an audit system is crucial in preventing
debilitating misstatements in a company's records and reports.