Auditors' Independence

Summarizing the above statements it should be clear now that an audit creates at least 2 (two) kind of values for the business: external (public) and internal.

The main risk for the auditor performing its public function is to issue a wrong opinion about the fairness of financial information presented by the client. But when performing its internal function the main risk comes to producing a report of low quality or giving a wrong business advice to the client. The significance of these risks and possible outcome for the auditors are so different that it basically splits the modern audit profession by two parts: public oriented and client oriented. As a general advice, we would recommend to engage different auditors for performance of their external and internal functions. Such decision may be more cost effective and almost certainly maximizes the internal value of audit for your business.

Moreover, if internal and external audits are performed by the same auditors the issue of auditors' independence clearly arises. This issue comes to the point that such auditors can not be completely free in their judgments and risk evaluation if they advise client on the issues of information system design, internal control procedures and business processes optimization. If client implements such advice the auditors, in essence, will audit how the client has realized the practical implementation instead of auditing information system and internal controls themselves.

This problem of external auditors independence has always accompanied the audit profession and reached its critical point in the beginning of this century in result of overwhelming external auditors' failures in the US and UK. Affecting the corporate governance compliance programs the Sarbanes-Oxley Act of 2002 (the Act) has introduced a direct ban for some other outsourced services which could potentially be rendered by external auditors in the USA. The services of bookkeeping, financial information system design, appraisal or valuation, internal auditing, human resource and legal consulting are among others prohibited for auditors to be rendered to their external audit clients.

The International Standards on Auditing (ISA) in their Code of Ethics for Professional Accountants (the Code) also address the issue of external auditors independence. But the statements of the Code are more of explanatory and recommendatory nature than the rules for strict compliance. Regardless of no direct ban the Code recognizes the problem and recommends the auditors to avoid the potential risk of independence conflict. The Ukrainian legislation, besides professional regulation in face of the ISA, keeps silent on this particular aspect.

Being a Ukrainian legal entity and, as such, not a subject to the Act's compliance requirements, Alt, nevertheless, DOES NOT perform the services of accounting and internal audit to our external audit clients.