Case 2.2 Waste Management Due Care
1. Auditor independence is defined as the independence of the internal auditor or of the external auditor from parties that may have financial interest in the business being audited. This requires integrity and an objective approach to the audit process. Auditor must out their work freely and in an objective manner. Arthur Anderson and Waste Management have developed a close business relation over the years and employees have been switching between companies. Thus, created a closer relationship by auditing under the influence of information that can be obtained. This has already violated the rule of auditor independence with business interests on both sides. 2. A firm has the responsibility to ensure professionalism in the company with standards that are applicable to its accounting and auditing practice. This also includes the quality control where they meet 1. The professional requirements and/or 2. The firm’s control policies procedures affect the degree of compliance with a firm’s prescribed quality control policies and procedures then therefore an effectiveness of the system. Waste Management should have a professional control over the audit team as well as the business relation with Arthur Anderson. Internal control is very important when Waste Management decides to act on hiring previous Arthur Anderson employees. These employees must always keep their audit professional requirement by not involving too much interest in the relation with Arthur Anderson and Waste Management. Waste Management should always practice assurance to ensure that every auditor or CPA accountants that they hire or do business with are performing professionally and freely at the objective matters. 3. The auditor's responses to the assessed risks of material misstatement, particularly fraud risks, should involve the application of professional skepticism in gathering and evaluating audit evidence. Therefore, Andersen’s final decision was not...
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