The primary purpose of auditor is provided audit service to audit client. Auditor main duty is to offer independence verification of a company's record to make sure that all the information matches up to what was provided. The audit is an important part of the capital market framework as it not only reduces the cost of information exchange between managers and shareholders but also provides a signaling mechanism to the markets that the information which management is providing is reliable.
Independence of auditor is important to external auditor’s role. An analysis of various parliamentary reports, statutes such as case law, journals and annual reports will provide a basis for considering the claim that audit independence is a central element to the external auditor's role. It can be seen through APB ethical standards govern issues relating to the integrity, objectivity and independence of auditor.
The vital of auditors’ independence can be seen through in the case of Enron. The auditors who were Arthur Andersen received fees for audit and non audit services. Other than that, there were regular exchanges of employees within Enron and Arthur Andersen. Arthur Andersen did not report the fraud to the shareholder although they have made a report on the company’s account. It is because the fraud is committed by management, the auditor need to make sure that they were in management’s good books in order to obtain the contract of non audit service. However, the case of Enron has caused a crisis to the confidence in auditors and the reliability of financial reporting. There is same case in HIH Insurance Ltd in Australia. The auditors who were Arthur Andersen provided audit and non audit services. Moreover, the auditors ignored a document dated July 1998 which showed that HIH was substantially under reserve for many years. The company created a loss of AUS$5.3 billion and