What is the role of an external auditor and why is independence essential?

• A. To prepare tax returns; independence ensures cost efficiency.
• B. To manage daily cash; independence ensures timely reporting.
• C. To approve budgets; independence ensures compliance with laws.
• D. To provide independent assurance on the truth and fairness of financial statements; independence ensures objectivity and credibility.

Answer: (D)

An external auditor’s job is to examine a company’s financial records and supporting evidence and form an opinion on whether the financial statements present a true and fair view in line with the applicable accounting framework. Independence matters because it protects objectivity: the auditor’s conclusions must not be influenced by management or other interests, so users can trust the opinion. Independence also underpins credibility, since stakeholders rely on an unbiased assessment when making decisions. This independence is maintained both in mind (professional skepticism) and in appearance (no conflicts that could be seen by others as compromising neutrality). The other options describe tasks outside the audit role, such as preparing tax returns, handling daily cash, or approving budgets, which do not involve providing independent assurance on the financial statements.