Auditor Independence: An Impossible Dream

In recent months there has been much discussion about the freedom of CPA auditors; the leadership of the AICPA, the Auditing Criteria Board, the population Oversight Table, the Self-reliance Standards Table, and most lately the proposed independence guidelines promulgated by the SEC have the ability to attempted to clarify and enhance auditor freedom. Several paper and journal articles have addressed the situation. In my opinion, all the efforts to tinker with rules of stock title by relatives of Certified public accountants and limit the scope of solutions provided to attest clients will neglect to bring auditor independence before the biggest tension of all upon auditor freedom is recognized and effectively dealt with—the fact that the client pays the audit fee. The ideal of auditor freedom has been clearly stated for a long period. The second basic standard of Generally Approved Auditing Criteria states that " In most matters associated with the project, an self-reliance in mental attitude is to be maintained by the auditor or perhaps auditors. ” In spite of everything has recently been said and written about the situation, I believe the best explanation of independence can be contained in Passage 2 of Section 220 of Assertion on Auditing Standards #1. It says that the auditor " has to be without opinion with respect to the client under audit”. Further, " independence does not imply the attitude of any prosecutor but rather a judicial impartiality”.

Considering that the internal auditor is a staff of managing and is influenced by management for raises and promotions, it could be argued that he/she will probably be biased in favour of management. Alternatively, an agent for the Internal Earnings Service can be expected to possess a prosecutorial bias. People accounting profession has held itself out as the group of auditors with the unprejudiced mental frame of mind. In an best world this might be the case, but in reality I will argue that these types of auditors could possibly be less self-employed than the additional auditors.

To begin with, the CERTIFIED PUBLIC ACCOUNTANT auditor is dependent on the customer to pay out the audit fee. The population accounting profession may argue that losing an audit consumer is nowhere near as serious as losing a person's job (as might occur to an internal auditor who is crucial of management). Indeed, in the event that an auditor has 100 clientele all of similar size, it may not matter very much if the auditor loses one of the clients. Nevertheless , if the auditor only offers 2 clients of similar size, it truly is obvious that the consequences of losing a customer will be alternatively serious to the auditor; in this case it would be hard to argue which the auditor is definitely not biased in favor of the consumer. Perhaps we're able to agree that if the total fees from a client tend not to exceed 1% of an auditor's total billings, that auditor is impartial of that client. But what in the event the total charges from a client exceed twenty percent (or 10% or 30% or 60%) of an auditor's total billings? At what threshold will the auditor reduce his/her freedom? This is a concern that needs to be addressed. Whenever retaining " very good client relations" with a particular audit client is important to the career of a CPA auditor, he/she might be even less independent than an internal auditor. If an inside auditor is definitely fired mainly because he/she contains a disagreement with management, the internal auditor has the right to drag into court for wrongful termination. Supervision has to carry this at heart when choosing to fire the internal auditor. Alternatively, if an audit client chooses to engage an additional CPA company, there is no option for the audit partner who manages to lose the diamond (and supervision realizes this in making the decision to engage an additional CPA firm). Thus, it should be recognized that external, CPA auditors aren't necessarily even more independent than internal auditors. Some may possibly argue that so long as the charges received via a client are small relative to the total earnings of the CPA firm, self-reliance is maintained. However , CERTIFIED PUBLIC ACCOUNTANT firms have to use...


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