Conflicts of Interest between Auditors and Clients Essay

Conflicts of Interest between Auditors and Clients Essay

Length: 2117 words (6 double-spaced pages)

Rating: Term Papers

Open Document

Essay Preview

The complete destruction of companies including Arthur Andersen, HealthSouth, and Enron, revealed a significant weakness in the United States audit system. The significant weakness is the failure to deliver true independence between the auditors and their clients. In each of these companies there was deviation from professional rules of conduct resulting from the pressures of clients placed upon their auditors (Goldman, and Barlev 857-859). Over the years, client and auditor relationships were intertwined tightly putting aside the unbiased function of auditors. Auditor careers depended on the success of their client (Kaplan 363-383). Auditors found themselves in situations that put their profession in a questionable time driving them to compromise their ethics, professionalism, objectivity, and their independence from the company. A vital trust relationship role for independent auditors has been woven in society and this role is essential for the effective functioning of the financial economic system (Guiral, Rogers, Ruiz, and Gonzalo 155-166). However, the financial world has lost confidence in the trustworthiness of auditor firms. There are three potential threats to auditor independence: executives hiring and firing auditors, auditors taking positions the client instead of the unbiased place, and auditors providing non audit services to clients (Moore, Tetlock, Tanlu, and Bazerman 10-29).

According to the Institute of Internal Auditors, “conflict of interest is a situation in which an internal auditor, who is in a position of trust, has a competing professional or personal interest (Institute of Internal Auditors)”. Competing interests can make it difficult to fulfill his or her duties impartially as an auditor. "A perso...


... middle of paper ...


...tion Law 29 (2):363-383. 365-partners and clients


Threats to Auditor Independence: The Impact of Relationship and Economic Bonds. By: Ping Ye; Carson, Elizabeth; Simnett, Roger. Auditing, Feb2011, Vol. 30 Issue 1, p121-148, 28p, 1 Diagram, 6 Charts; DOI: 10.2308/aud.2011.30.1.121

Exploring Trust and the Auditor-Client Relationship: Factors Influencing the Auditor's Trust of a Client Representative. By: Rennie, Morina D.; Kopp, Lori S.; Lemon, W. Morley. Auditing, May2010, Vol. 29 Issue 1, p279-293, 15p, 1 Diagram, 3 Charts; DOI: 10.2308/aud.2010.29.1.279
The Auditor-Firm Conflict of Interests: Its Implications for Independence: A Reply. By: Goldman, Arieh; Barlev, Benzion. Accounting Review, Oct75, Vol. 50 Issue 4, p857-859, 3p
Are Auditors Becoming Too Cozy With Their Clients? By: Briloff, Abraham J.. Business & Society Review (00453609), Summer85, Issue 54

Need Writing Help?

Get feedback on grammar, clarity, concision and logic instantly.

Check your paper »

Legal Regulation of Corporate Governance in the Role of Auditors Essay

- INTRODUCTION In recent years, general public start to raise questions about the level of audit independence and the quality of audit information, especially after corporate collapses such as HIH, Enron and One.Tel where independent audit reports showed that the companies were making a profit, when in fact they were heavily in debt. This essay is to provide a brief overview of the current regulation of corporate governance in Australia in the role of auditors, and illustrate some gaps in the regulation with examples....   [tags: corporate governance, auditor regulation]

Term Papers
1966 words (5.6 pages)

External Auditors Must be Independent Essay

- ... The presence of an external auditor allows creditors, investors or bankers to use financial statements that have been prepared with confidence. Although it does not guarantee the accuracy of a financial statement, it provides users with some reassurance that a company’s financial statements give a true and fair view of its financial position and its business operations. It also provides credibility, where in business, is a major asset. With credibility, the willingness of investors, bankers and others to relate and undertake business projects with a company increases....   [tags: scandal, policies, manipulate]

Term Papers
1153 words (3.3 pages)

Reliability Of The Professional Skepticism Of Auditors Essay

- assessment and the incorrect assertion depends on the conditional information that the auditor is having. Some of the reasons highlighted about the financial misstatements are clients’ effective internal controls. The auditors with high professional skepticism are likely to bring more persuasive evidence in terms of quality and quality of information that leads to more accurate financial reporting with error free statements. So for conducting effective audits it is necessary for auditors to adopt professional skepticism....   [tags: Auditing, Audit, Internal control, Financial audit]

Term Papers
980 words (2.8 pages)

Audit Tenure, Industry Specialization, and Firm Site Affect on Financial Statements

- ... I used restatements as my dependent variable. Here, RESTATE is coded 1 for each firm-year a company restated its financials, and 0 otherwise. Auditor Tenure TENURE will be one of my experimental variables. This variable is measured using the natural log of years the audit firms audit their clients. Using auditor data from COMPUSTAT database, we use tenure to determine the number of years the auditor has been working with the client from the original issued financial statement to the years up to/ after the financial restatement....   [tags: auditors, restatement, effects, clients]

Term Papers
1341 words (3.8 pages)

Essay on Importance of External Auditors

- The aim of this essay is to study the function of external auditors in order to analyze why it is important to be independent. The primary mission of external auditors is to review and evaluate all the financial records of a company or corporation. They provide an objective opinion on the organization’s financial statement and effectiveness of the accounting polices in order to help management to make decisions. If the independence of the external auditors is impaired, the public will doubt the quality of professional auditing services, and the consequence would be very serious, just like the bankruptcy of Enron led to the disorganization of Arthur Andersen, once a giant accounting company i...   [tags: business]

Term Papers
1117 words (3.2 pages)

Auditors ' Motivated Blindness By Arthur Anderson Issuance Of An Unqualified Audit Report

- Auditors’ motivated blindness. It could be that this conflict of interest is the reason behind Arthur Anderson issuance of an unqualified audit report without questioning or recommending to the audit committee the treatment of the related party transactions (Tonge et al., 2003, p. 15), the appropriate disclosures to make or the reasonable assumptions of mark-to market accounting. Moreover, Andersen admitted it destroyed perhaps thousands of documents and electronic files related to the engagement, in accordance with “firm policy,” supposedly before the SEC issued a subpoena for them (Thomas, 2002)....   [tags: Ethics, Business ethics, Enron, Auditor's report]

Term Papers
1166 words (3.3 pages)

Conflicts In Interpersonal Conflicts Essays

- Interpersonal conflicts take place every day in our lives to a level where they can become a part of our daily routine. However, some people can experience it more than the others, depending on a lot of factors including their social skills. So what is a conflict. Donohue defines a conflict as “a situation in which interdependent people express differences in satisfying their individual needs and interests, and they receive interference from each other in accomplishing these goals” (Donohue, 1992)....   [tags: Conflict, Management, Problem solving]

Term Papers
943 words (2.7 pages)

Public Officials and Conflicts of Interest Essay

- As the adage suggests, if it looks too good to be true, it probably is. This was the case in the seemingly flawless project to revamp the downtown area of Myrtle Beach by replacing the Pavilion with the "New Pavilion." This new entity downtown would bring tourists to the area even during the off-season. With upscale shopping, half-a-dozen restaurants, an amphitheater, and a NASCAR-themed roller coaster, there would be something for the entire family. Before any hype could begin, the master developer of the plan and his company's façade was lifted and fictitious credentials were revealed....   [tags: Current Events]

Term Papers
829 words (2.4 pages)

Essay on MANDATORY ROTATION OF AUDITORS

- Abstract In light of a number of high-profile corporate failures during the first half of 2001, a number of studies have been performed to address the impact of mandatory rotation of audit firms to ensure the appropriate level of ‘independence’ of auditors. Majority of studies conclude that the detrimental effects of firm rotation on the quality of the audit work by far outweigh its positive effects as a safeguard against various independence and quality threats. Frequent changes of audit firms, whether resulting from mandatory rotation or otherwise, introduce threats to independence and operational difficulties that make audit failure more likely....   [tags: essays research papers fc]

Term Papers
2297 words (6.6 pages)

Essay on PriceWaterhouseCoopers LLP Auditors? Independence Issues & Violations

- SEC Concerned with Changes in the Public Accounting Profession The SEC and the former Chairman Arthur Levitt Jr. were extremely concerned that the public accounting firms were violating the auditors independence rules addressed through the Securities Exchange Acts. Auditing firms now had dual citizenship in public companies: (1) they issued opinions on audited financial statements and (2) they participated in various consulting engagements for those same companies. Levitt's solution was to split auditing and consulting....   [tags: essays research papers fc]

Free Essays
1631 words (4.7 pages)