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Auditor Independence Deficiencies &Alleged Audit Failures
Material Source: springer.lib.
Author:succe Michael A. Pearson
ABSTRACT: Some critics of the accounting/auditing profession in the United States claim that independence-related quality control problems are the cau of an incread number of alleged audit failures. Certified public accountants (CPAs) were queried regarding independence impairment in their profession. Questionnaire results indicate a number of CPAs believe independence deficiencies exist, and some CPAs admit to personal independence impairment.
A recent rash of alleged audit failures in the United States has caud considerable concer
n among urs of financial statements and has brought renewed attention to the ethical concept of auditor independence. Klott (1984) reports that the auditing profession appears “pressured by fierce competition for clients to cut costs on audit 佛珠植物 examinations at a time when business transactions have become more complicated to trace and evaluate.” He further states, "There is added concern that competitive pressures may have eroded some of the independence of the auditor . . . . [The] fight for clients may force the auditor to bend his opinion in marginal cas in favor of a client and to endor a company's financial statement rather than risk losing the client." The American Institute of Certified Public Accountants (AICPA) has identified 'Improving the Quality of Practice by CPAs' as one of 14 major issues confronting the accounting/auditing profession. 'Independence and Objectivity' is another critical topic (AICPA, 1984). This article provides empirical data on the matters and discuss the extent to which certain independence-related quality control problems exist.
红红的雨花石Reasons for audit failures
An audit failure takes place when an auditor indicates to the public that a client's financial statements are fairly prented in accordance with generally accepted accounting principles when in fact they are not. Perry (1984), former chief accountant of the U.S. Securities and Exchange Commission's Division of Enforcement, believes the five most common reasons for audit failures (hereafter described as the 'Perry acts') are "scope restrictions, incompetence, auditing by conversation, not critically evaluating transactions, [and] lack of objectivity and skepticism."
Each of the Perry acts can be directly linked to the concept of auditor independence. Independence, which is one element of an auditing firm's quality control system, is defined by the accounting/auditing profession in the United States as "the ability to act with integrity and objectivity" (AICPA, 1985). Agreeing to a significant client-impod scope restriction, accepting the word of management for something that normally requires independent verification, knowingly neglecting the critical evaluation of a significant client transaction, and lacking objectivity and skepticism (by, for example, agreeing to objectionable client requests or demands for the purpo of keeping a client c
ontented) are acts which in each ca would indicate that the auditor in fact lacks independence. An auditor who commits any of the deeds is not performing with integrity nor is the auditor acting in an objective manner. Instead, he or she is subordinating audit judgment to the client. Such an auditor is not free from bias and is not truly able to express an impartial opinion on the fair prentation of the client's financial statements.
Incompetence can also be viewed in the context of independence deficiency. An auditor who completes an engagement despite not having the level of training and experience necessary for the particular engagement is in esnce acting without integrity. Such an engagement should never be accepted (unless the auditor believes the experti can be obtained to finish the audit work adequately). It is certainly questionable how objective an auditor can be when he or she lacks appropriate training and experience.
Quality of practice questionnaire
Ideally, auditors of financial statements are independent in every n of the word. If the
five Perry acts are taking place with any significant degree of frequency, then steps must be taken to prevent future occurrences. This ction describes the results of a rearch project designed to assist in determining the prevalence of the Perry acts.
A mail questionnaire which asked potential respondents how often they perceived each of the five Perry acts to occur in audit practice and whether they themlves were ever guilty of such acts was prepared and mailed to a sample of certified public accountants (CPAs) in the United States. Two hundred fifty CPAs specifically identified with the eight largest U.S. accounting firms (the 'Big Eight') and 250 CPAs specifically identified with other firms ('non-Big Eight') were randomly lected to receive the questionnaire. Only individual practitioners, partners, or shareholders/officers of professional corporations in public practice were included in this lection process.
Of a total of 137 respons received, 120 were from CPAs who are currently involved in the independent auditing of financial statements in the United States; it is the respons of the 120 auditors that are discusd in this article. Big Eight CPAs reprent 59 of the
120 respons; non-Big Eight total 61. A majority of both groups reports more than 15years experience in auditing.
TABLE1 Auditor Independence Deficiencies
Question: How often do you think the following events or activities take place in the practice of independent auditing of financial statements in the United States (not specifically by your firm)? | Percent answering | Number of respondents |
Frequently | Occasionally | Rarely | Never |
面字成语(A)A CPA agrees (or permits a subordinate to agree) to a significant client-impod scope restriction. | 2％ | 33％ | 实用技术培训56％ | 9％ | 119 |
(B) An engagement is completed even though the CPA and/or subordinates do not have the appropriate levels of training or experience that the particular engagement warrants. | 15％ | 54％ | 28％ | 3％ | 118 |
(C)A CPA accepts (or permits a subordinate to accept) the word of management for something that normally requires independent verification. | 12％ | 63％ | 22％ | 猴王出世 3％ | 118 |
(D)A CPA knowingly neglects (or permits a subordinate to neglect) the critical evaluation of a significant client transaction. | 2％ | 28％ | 61％ | 9％ | 118 |
| qqyoux (E)A CPA agrees (or permits a subordinate to agree) to a client request or demand (other than a restriction on audit scope) for the purpo of keeping the client contented, even though the CPA knows that complying with the particular client request or demand is not appropriate under the circumstances. | 5％ | 45％ | 41％ | 9％ | 117 |
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