Question

Hi Tina. Thanks so much for starting our discussion this week! You brought up a great point about independence. In order for an audit opinion to be reliable, it must be issued by an “independent” accounting firm. The increased independence requirement of SOX took away huge amounts of revenue from the public accounting firms. However, I think most of them have probably been able to make up most of those lost revenues through the additional work they do related to SOX compliance. Prior to SOX, many public accounting firms were earning more money from their audit clients doing consulting work than they were earning for the audit fees (Arthur Andersen and Enron are a great example of this!). When the auditors are doing consulting work, it can create somewhat of a gray line between the auditors and management. It also makes it extremely difficult (if not impossible) for the auditor to remain objective. Subsequent to SOX, the audit firms had to stop performing these consulting services for their audit clients (or relinquish their duties as the auditor for that company). They can do one or the other, but not both. Class, do you think it's possible for an auditor to be completely independent from their client? Why or why not?

Answer 1

Why not. I think an auditor should be completely independent of his client. An auditor should focus on only auditing work for which he was hired by the company. An auditor is responsible to the company as well as to the government for the audit work he does. An auditor is a certified person to do auditing, he or she should not entertain any other Consulting work for the client for which she is not certified to do and at the same time, he or she agreed with the client that he or she does only the auditing work. To conclude, I think an auditor should focus only on auditing work and he should be independent of his client.