Do consulting services affect audit independence?
Should accounting firms be concerned about performing consulting services for their audit clients? After all, auditors are in a natural position to spot inefficiencies that can wreak havoc on the bottom line. They can help a company cut the waste and grow. But should they? Does it put an accounting firm’s unbiased audit approach at risk?
Most accounting firms say that it does not compromise their audit approach. There also are already safe guards in place for publicly traded companies. For example, the SEC has ruled that ownership of stock in a company audited by an auditor impairs the independence and objectivity of the auditor.
However, critics say that performing consulting services for an audit client impairs independence just as much as owning stock. An example of how this could happen (albeit an extreme one) is if the consulting engagement ended up negatively impacting the company. In this case, would the accounting firm’s auditors have reason to look at the financial statements differently? Would they?
If so, to what extent should auditors be kept in the dark about a client in the pursuit of independence? Could they serve their clients well while trying to “keep out?” Accounting firms believe that the quality of an audit actually increases as a result of extended services because they can more fully understand the client’s business dealings.
Voice of the Editor
Which isn’t completely true. I mean, occasionally I drop by when I manage to sneak out of the nonstop frat party over at Going Concern, but I’m mostly a wallflower over there. I’m happy to say that I’ve been given express permission (or explicit orders, if you like) to wander over here to AccountingWEB more often.
Why is that, you might ask? My job is to replace the irreplaceable Gail Perry as Editor-in-Chief. What does that mean? I don’t really know! I think it’ll be fun getting a feel for things, throwing in my own thoughts here and there, and listening to the discussions you’re having about the accounting profession.