• Programming independence
• Investigative independence
• Reporting independence
• Programming independence essentially protects the auditor’s ability to select the most appropriate strategy when conducting an audit. Auditors must be free to approach a piece of work in whatever manner they consider best. As a client company grows and conducts new activities, the auditor’s approach will likely have to adapt to account for these. In addition, the auditing profession is a dynamic one, with new techniques constantly being developed and upgraded which the auditor may decide to use. The strategy/proposed methods which the auditor intends to implement cannot be inhibited in any way.

• Investigative independence protects the auditor’s ability to implement the strategies in whatever manner they consider necessary. Basically, auditors must have unlimited access to all company information. Any queries regarding a company’s business and accounting treatment must be answered by the company. The collection of audit evidence is an essential process, and cannot be restricted in any way by the client company.
• Reporting independence protects the auditors’ ability to choose to reveal to the public any information they believe should be disclosed. If company directors have been misleading shareholders by falsifying accounting information, they will strive to prevent the auditors from reporting this. It is in situations like this when auditor independence is most likely to be compromised.

 

 RELATIONSHIP WITH CLIENTS
An auditor earns a living from the fee he is paid it is therefore automatic that he does not want to do anything to jeopardize this income. This reliance on clients’ fees may affect the independence of an auditor. If the auditor feels this client income is more important than their responsibilities to shareholders he may not perform the audit with the shareholder’s interests in mind. The larger the fee income the more likely the auditor is to shirk his responsibilities and perform the audit without independence. This could lead to the manipulation of figures and exploitation of accounting standards. By performing the audit without independence the shareholders’ may get misled, as the auditor is now reliant on the directors. To encourage auditors to maintain their independence they must be protected from the director’s board. If they were able to challenge statements and figures without the risk of losing their job they would be more likely to work with complete independence. Ultimately, as long as the client determines audit appointments and fees an auditor will never be able to have complete economic independence.
In most cases it is the directors that negotiate an audit contract with the auditors. This may cause problems. Audit firms on occasions quote low prices to directors to ensure repeat business, or to get new clients. By doing so the firm may not be able to perform the audit fully as they do not have enough income to pay for a thorough investigation. Cutting corners could mean the audit team would be reporting without all the evidence required which will affect the quality of the report. This would bring into question their independence.

It is common for the audit firm of a company to provide extra services as well as performing the audit. Helping a company reduce its tax charges or acting as a consultant. If non-audit fees are substantial in retaliation to audit fees suspicions will arise that auditing standards may be compromised. The firm would no longer be unbiased, as it would want the company to perform well so it can continue to earn the addition fee for their consultancy. This would mean the audit firm would be dependent on the directors and they would no longer be working with independence.
The increased competition between the larger firms means that company image is very important. No audit firm wants to have to explain to the press the loss of a big client. This gives the directors of the large company a commanding position over its audit firm and they may look to take advantage of it. The audit team would feel pressured to satisfy the needs of the directors and in doing so would lose their independence.

Internal auditing is a profession and activity involved in advising organizations regarding how to better achieve their objectives. Internal auditing involves the utilization of a systematic methodology for analyzing business processes or organizational problems and recommending solutions. Professionals called internal auditors are employed by organizations to perform the internal auditing activity. The scope of internal auditing within an organization is broad and may involve internal control topics such as the efficacy of operations, the reliability of financial reporting, deterring and investigating fraud, safeguarding assets, and compliance with laws and regulations. Internal auditing frequently involves measuring compliance with the entity's policies and procedures. However, internal auditors are not responsible for the execution of company activities; they advise management and the Board of Directors (or similar oversight body) regarding how to better execute their responsibilities. As a result of their broad scope of involvement, internal auditors may have a variety of higher educational and professional backgrounds.

Nature of internal audit activity
Based on a risk assessment of an organization, internal auditors, management and oversight Boards determine where to focus internal auditing efforts. Internal auditing activity is generally conducted as one or more discrete projects. A typical internal audit project involves the following steps:

1. Establish and communicate the scope and objectives for the audit to appropriate management.
2. Develop an understanding of the business area under review. This includes objectives, measurements, and key transaction types. This involves review of documents and interviews. Flowcharts and narratives may be created if necessary.
3. Identify control procedures used to ensure each key transaction type is properly controlled and monitored.
4. Develop and execute a risk-based sampling and testing approach to determine whether the most important controls are operating as intended.
5. Report problems identified and negotiate action plans with management to address the problems.
6. Follow-up on reported findings at appropriate intervals. Internal audit departments maintain a follow-up database for this purpose. 

Internal Audit standards require the development of a plan of audit engagements (projects) based on a risk assessment, updated at least annually. The input of senior management and the Board is typically included in this process. Many departments update their plan of engagements throughout the year as risks or organizational priorities change.
This effort helps ensure the audit activity is aligned with the organization’s objectives, by answering two key questions: First, what goals are the organizations trying to accomplish in the upcoming period? Second, how can the Internal Audit Department assist the organization in achieving these goals?

Developing and retaining staff
Developing and retaining quality professionals is a key concern in the profession. Key methods for developing and retaining internal audit staff personnel include:
1. Providing challenging, varied assignments.
2. Ensuring quality supervision
3. Ensuring staff participates in projects from start to finish, learning all phases of the audit process.
4. Participating on departmental improvement task forces, such as preparation for quality assurance review.
5. Participating in the recruiting and interviewing process for new hires
6. Rotating through various audit teams (in larger departments) or audits of various businesses.
7. Providing both outside training (e.g., seminars) and in-house training (e.g., company systems) for two weeks/year
8. Participation in annual risk assessment activities, whether asking key questions or just taking notes.