Relationship between Auditor Independence and Financial Statement Quality in Rwanda
DOI:
https://doi.org/10.47672/ajacc.2163Abstract
Purpose: The aim of the study was to assess the relationship between auditor independence and financial statement quality in Rwanda.
Methodology: This study adopted a desk methodology. A desk study research design is commonly known as secondary data collection. This is basically collecting data from existing resources preferably because of its low cost advantage as compared to a field research. Our current study looked into already published studies and reports as the data was easily accessed through online journals and libraries.
Findings: The study demonstrated that when auditors maintain a high level of independence, they are more likely to detect and report financial misstatements or irregularities accurately. This leads to higher-quality financial statements that investors and stakeholders can rely on for decision-making purposes. Conversely, when auditor independence is compromised, such as through close relationships with management or financial incentives, there is a greater risk of overlooking errors or fraudulent activities, ultimately reducing the quality of financial reporting.
Regulatory bodies and professional standards, such as the Sarbanes-Oxley Act and the International Standards on Auditing, emphasize the importance of auditor independence to safeguard the integrity of financial information. Companies that prioritize auditor independence and engage independent audit firms tend to have stronger financial statement quality, which contributes to market confidence and investor trust in the transparency and accuracy of financial reporting.
Implications to Theory, Practice and Policy: Agency theory, institutional theory and stakeholder theory may be used to anchor future studies on assessing the relationship between auditor independence and financial statement quality in Rwanda. In terms of practical implications, it is essential to encourage audit firms and companies to adopt best practices that ensure auditor independence. From a policy perspective, collaboration with regulatory bodies is essential to review and enhance existing audit regulations, standards, and guidelines.
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