IAI Actuarial Core Principles · Business Finance · Regulation of financial reporting of incorporated entities
Which arrangement most clearly strengthens auditor independence in a listed company?
Having the audit committee of independent directors oversee the auditor's appointment and remuneration best protects independence, because management cannot influence the auditor through fees or selection. The other arrangements create self-interest, self-review or family threats to objectivity.
- AThe auditor's fee is set by the finance director after seeing the draft opinion
- BThe auditor also designs and operates the company's accounting systems
- CThe auditor is appointed and its remuneration overseen by the audit committee made up of independent directorsCorrect
- DThe auditor holds a significant shareholding in the company
- The auditor's partner is a close relative of the chief executive
Explanation
Oversight by an independent audit committee reduces management influence on the auditor's appointment and fees. The other options each create self-interest, self-review or familiarity threats to independence.
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