# Independence of a company auditor



## Humpback (17 Jun 2007)

I have checked the company law act relevant in Ireland - 1963? - and done some google searches, but cannot find a satisfactory answer to this question for Ireland. Any help would be appreciated.

What laws, or codes of practice, if any exist in Ireland to determine the level of independence a company auditor must have from the directors of the company they are auditing?

For example, could an employee of the auditing company (or former employee) be a director of the company they're auditing? Or what about the auditor being in the same building as the company they're auditing? Or if they're paying rent to a company which is an associated company (same directors) as the company they're auditing? Would any of these points create a conflict of interest which should prevent that auditor from auditing said company?


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## Dowee (18 Jun 2007)

I don't think you'll find what you are looking for in The Companies Acts, below is an extract from an ethics standards (APB ES 1 Integrity, Objectivity and Independence) it lists potential threats to independence you should find most of what you are looking for that standard.

self-interest threat
 	 	A self-interest threat arises when auditors have financial or other interests which might cause them to be reluctant to take actions that would be adverse to the interests of the audit firm or any individual in a position to influence the conduct or outcome of the audit (for example, where they have an investment in the client, are seeking to provide additional services to the client or need to recover long-outstanding fees from the client).

self-review threat
 	 	A self-review threat arises when the results of a non-audit service performed by the auditors or by others within the audit firm are reflected in the amounts included or disclosed in the financial statements (for example, where the audit firm has been involved in maintaining the accounting records, or undertaking valuations that are incorporated in the financial statements). In the course of the audit, the auditors may need to re-evaluate the work performed in the non-audit service. As, by virtue of providing the non-audit service, the audit firm is associated with aspects of the preparation of the financial statements, it may be (or may be perceived to be) unable to take an impartial view of relevant aspects of those financial statements.

management threat
 	 	A management threat arises when the audit firm undertakes work that involves making judgments and taking decisions, which are the responsibility of management (for example, where it has been involved in the design, selection and implementation of financial information technology systems). In such work, the audit firm may become closely aligned with the views and interests of management and the auditors' objectivity and independence may be impaired, or may be perceived to be, impaired.

advocacy threat
 	 	An advocacy threat arises when the audit firm undertakes work that involves acting as an advocate for an audit client and supporting a position taken by management in an adversarial context (for example, by acting as a legal advocate for the client in litigation). In order to act in an advocacy role, the audit firm has to adopt a position closely aligned to that of management. This creates both actual and perceived threats to the auditors' objectivity and independence.

familiarity (or trust) threat
 	 	A familiarity (or trust) threat arises when the auditors are predisposed to accept or are insufficiently questioning of the client's point of view (for example, where they develop close personal relationships with client personnel through long association with the client).

intimidation threat
 	 	An intimidation threat arises when the auditors' conduct is influenced by fear or threats (for example, where they encounter an aggressive and dominating individual).


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## Graham_07 (18 Jun 2007)

Section 187(2) of the Companies Act 1990 outlines certain persons who may not act as auditor of a company :-

2) None of the following persons shall be qualified for appointment as auditor of a company—
( _a_ ) an officer or servant of the company,
( _b_ ) a person who has been an officer or servant of the company within a period in respect of which accounts would fall to be audited by him if he were appointed auditor of the company.
( _c_ ) a parent, spouse, brother, sister or child of an officer of the company,
( _d_ ) a person who is a partner of or in the employment of an officer of the company,.
( _e_ ) a person who is disqualified under this subsection for appointment as auditor of any other body corporate that is a subsidiary or holding company of the company or a subsidiary of the company's holding company, or would be so disqualified if the body corporate were a company,
( _f_ ) a person who is disqualified under _subsection (3)_ for appointment as a public auditor of a society that is a subsidiary or holding company of the company or a subsidiary of the company's holding company,
( _g_ ) a body corporate.


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## Humpback (19 Jun 2007)

Many thanks folks.

Basically from what I'm reading there that I wouldn't have a leg to stand on legally based on the examples I've given above if I wasn't happy with what's going on.


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