Troshyna O.V.

Donetsk National University of Economics and Trade

after M. Tugan – Baranovsky, Ukraine

The problems of providing independence of auditors

It is necessary for an auditor to follow the principle of independence, which means absence of any (financial, family, property) personal interest to clients who are being tested, while forming an opinion about his financial reporting. Independence of auditors is conditioned by their professional activity of conducting an expert estimation of accounting and reporting in relation to veracity of economic activity’s reflection of business individual, allows to make a fair, correct auditor’s conclusion.

Such Ukrainian scientists have researched the principles of audit being adopted and the problems of ensuring observance of the principle of independence: A.M. Gerasimovich, M.V. Kuzhel’niy, V.Y.Savchenko.

The purpose of this article is a consideration the problems which interfere with implementation of one of important principles of the Code of professional ethics of auditors in Ukraine – the principle of independence.

Problems of ensuring of auditor’s independence:

· Financial dependence on the client;

· Lack of financial and intellectual resources.

Requirements and criteria of auditor’s independence are set by the standards of auditor activity, and also by the Code of professional ethics. An auditing firm fully depends on the leader of enterprise, which pays its services. An audit is a service which requires payment, consequently auditor’s independence might be doubtful, as an auditor has certain duties before the customer of audit, who can influence an auditor. Thus the financial ensuring of auditor depends on financing which is carried out by a customer.

The sum of payment of professional services of auditors must not depend on achievement of some certain result. The possibility of following auditor’s independence in case of their financial dependence on clients is constantly being discussed by the Ukrainian scientists however this problem remains unsolved in practice. As to an internal audit, force of pressure of financial dependence here is determined by the state of control system: if it is “sick”, efforts of managers are more frequently directed on covering failings, also putting auditor under pressure, and if it is “healthy” – on the correction of mistakes, liquidation of risks, that is to say a management is interested in their fullest exposure by an auditor and their objective estimation.

Auditors are independent when they are free of control or are not influenced by anybody. To achieve a complete independence an auditing firm must own such chartered capital which would prove its certain financial well-being. Frequently the Ukrainian auditor does not have necessary resources for example, financial and intellectual. Large international auditing firms give the employees more high-quality studies inwardly and out of company, experience in different countries and different spheres of economy, which Ukrainian companies unfortunately can’t provide.

The Ukrainian auditors depend on their clients. “Corporate” auditing firms which serve interests of certain client, are often created. In this case, the firm should be equated to the department of internal audit. But mainly dependence of auditor on a client is expressed in conducting auditing verifications parallel with the grant of consulting services. In the US American society was shocked after scandal with Enron, when everybody found out that in 2001 the company Disney paid 8,6 million $ to the auditing firm Price Waterhouse Coopers for an audit and 32 million $ for other services. These events and discussions made Ukrainians give a glance on the businesses on this occasion as well, although nobody would see a problem herein, if this news from abroad hasn’t appear, and it is bad.

No doubt, a compulsory rotation of auditors, which means that enterprises have to change auditing firms periodically, would help to decrease dependence of auditor on a client. But only the state can initiate rotation in modern conditions but it is presently occupied by the economic crisis, which for other states with more mighty economy, became an impulse for more intensive development. Though relation to the rotation abroad is ambiguous. Today a compulsory rotation among the countries of EU is foreseen only in Italy.

The possibility of following an auditor’s professional independence in case of their financial dependence on clients is constantly discussed by specialists, but effective recommendations are not found so far.

To improve the decision of problem of auditors’ independence it is necessary:

ü Expansion of forms and types of responsibility of auditors for the incorrect conclusion

ü Subsequent improvement of normative and methodological base of audit

ü Possible compulsory rotation of auditors.

Literature:

1) Миронов Л.Д. «Независимость аудиторов в современной Украине» // „Все про бухгалтерський облік”, №138 (09/2008 г.)// http://telegrafua.com/262/economics/4169/

2) Кодекс профессиональной этики аудиторов Украины // http://www.etika-auditorov.ru/kodeks-professionalnoy-etiki-auditorov-ukrainy/ razdel-8-nezavisimost/

3) К О Д Е К С від 18.12.1998 м.Київ Кодекс професійної етики аудиторів України