April 2000

ISB Proposes Framework for Auditor Independence

The Independence Standards Board (ISB) issued a discussion memorandum on March 3 that proposes a conceptual framework for auditor independence to serve as the foundation for developing principles-based independence standards. Comments are due May 31.

The proposal presents goals, definitions, and the role that the perception of independence plays in the development of independence standards; environmental factors that may put pressure on auditors; and factors that may alleviate those pressures and motivate auditors to maintain their independence. It also outlines the environment in which audits take place in an effort to facilitate an understanding of the audit process and the process's relationship to auditor independence.

The ISB takes both a personal-attributes approach and an activities-and-relationships approach in its definition of auditor independence and presents factors that may affect the significance of threats to independence and the effectiveness of safeguards to alleviate those threats. The discussion memorandum also considers whether public perception and the benefits and costs of independence should be included as concepts of auditor independence and suggests concepts and basic principles that the ISB could use in resolving specific independence issues.

The ISB acknowledges that some current independence rules may not address elements of the framework, and the board expects to reexamine the rules and deal with inconsistencies. It also recognizes that independence is only one factor and does not, by itself, produce a quality audit or guarantee that audit failures will not occur.

Given the complexity of the issues, the document is more than 70 pages, plus appendices. The proposal, A Conceptual Framework for Auditor's Independence, is available on the ISB's website, www.cpaindependence.org. *