Auditor Independence in reviewing Financial Statements
– investors can only make decisions based on publically available information the "efficient market price" as it is impossible for them to have all information about the firm the "fundamental market price"

– managers are rewarded with profit sharing bonuses, and have a motivation to make financial information as rosy as possible

– auditor independce is therefore a critical link to ensuring that the information obtained faithfully represents the company fairly.

– due to management being able to select the audit group they use, there is still a financial conflict of interest although diminished

– government appointed auditors may be a solution to this conflict.

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Auditor Independence in reviewing Financial Statements