There seems to increasing concern about the effect on
Is the erosion of auditor independence a big problem?
Answers
The steady increase in consulting activities is just one problem. Long standing auditor relationship is a greater problem. The timidity of auditors to commit (be responsible) themselves on the opinion (report wordings) that they issue is the biggest problem.
There is a movement now around the world to (1) advocate for auditor rotations (2) have transparent auditor reports as far as stating other business activities with the company, names of partners/auditors involved. (3) make the auditors "responsible" for the work they are doing (or the work they did not do).
Robert, a group on Linkedin that I am a member of (Boards & Advisors) have been discussing this issue for quite some time. I recommend checking out the group and maybe join.
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Thank you, Emerson. I will check out the LinkedIn site you mentioned. I agree with you that there are more dimensions to the issue than just the one I wrote about. Bob
I agree that long-standing auditor relationships are the greater problem. 3 companies that I have worked for have seen the following:
1) Public company with E&Y as auditor for years got a new
2) Private company with PwC as auditor for years issued clean opinion, although "shenanigans" by executives were obvious to me, as a new employee. Company went bankrupt 6 months after receiving clean opinion.
3) KPMG conducted off-site audit with no onsite fieldwork, all done through phone and email. No adjustments were proposed. I was with the company only 2 months at the time, but over the course of the next year found numerous significant adjustments.
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All CYA'd with boilerplate wording the Independent Auditor's Report under "
What is it they get paid for again?
What was that definition of "fiduciary responsibility"?
Robert: There is a crucial difference between the situation today and back before
I agree with Stephen's comments. It is not meaningful to simply use the total consulting revenues as being a threat to independence as it relates to SEC reporting clients. The SOX restrictions limit the services that can be provided to audit clients.
However, for non SEC clients, those restrictions do not apply and those conflict of interest issues between audit and consulting services is a valid concern.
Just because something is required does NOT mean that it's valuable. If audits were valuable financial statement users would pay for the audit. Since users won't pay for the audit, how valuable is it?
Next step....Pretend users will pay for the audit. If the auditor will perform the audit differently, how is the auditor independent when the client pays?
Audit firms offering Consulting work is a natural byproduct of relationship development. I trust my auditor to help me correct deficiencies by utilizing them also as a Consultant. We all have experienced or heard about abuse. But I do not believe there is a problem with the additional service offered. I believe problems exist when your controls are weak or non-existent. The controls are the responsibility of both sides, i.e. controls at the audit firm now consulting and controls at the entity utilizing the services of the audit/consulting firm.
If an
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