Safeguarding Independence

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I am very encouraged that The CPA Journal continues to run important articles on auditor independence. This vital subject needs to be in the forefront of every auditor’s thinking.

Peter Wyman (“Is Auditor Independence Really the Solution?,” April 2004) makes an important contribution to this discussion by emphasizing that auditor independence is an enabler of good auditing, and that to view it as an end in itself could have severe adverse consequences. He is also correct that attracting and retaining high-quality people to the auditing profession is vital. Incompetent but totally independent auditors are not a solution.

Notwithstanding Wyman’s statement, however, I believe that at least in the United States some of the audit failures in recent years have resulted from a lack of independence—the ability and willingness to make objective decisions. What other conclusion is possible when it is clear that the auditors had to have known there were accounting issues but chose to ignore or rationalize them? To prevent this in the future, the profession needs to continually emphasize ethical behavior and to implement safeguards to protect against the inevitable threats to independence—starting with a strong ethical culture within the firm. In addition, auditors—and audit committees—need to be sensitive to the issue of the appearance of independence, because faith in the integrity of financial statements is at the core of confidence in the capital markets.

I also agree with Editor-in-Chief Robert Colson’s April 2004 column, that an independent state of mind is the most fundamental ethical responsibility, and that only the auditor can assess whether such independence is compromised. But the objectivity of the input and advice that auditors provide to audit committee can be evaluated, and will increasingly be seen as a reasonable proxy for independence. The wise auditor will recognize that the way he or she acts matters.

Arthur Siegel, CPA
Former executive director, Independence Standards Board (ISB), Retired partner, Price Waterhouse LLP

Defining and Using Terms Precisely

The interview with SEC chief accountant Donald Nicolaisen (April 2004) raised the question, “What’s your take on the future of the accounting profession?” In responding, Nicolaisen noted, “… I am confident that the accounting and auditing profession will emerge stronger, more independent …”

In response to the next question, about the role of the AICPA, Nicolaisen stated, “I would caution, however, that whatever role it chooses to take in the future should not be confusing to the public—the AICPA is no longer a regulator or a standard setter for public company audits, and self-regulation of those who audit public companies is a thing of the past.”

“Profession” is a technical term. The criteria identified by Abraham Flexner, an influential leader in early-twentieth-century education reform, have been noted and accepted by sociologists through the decades since. “Professions” are identified fields whose members have much independence in rule-setting and regulation. Nicolaisen states explicitly that such responsibilities are no longer to be assumed by those who audit public companies. His use of the term “profession” earlier seems highly misleading.

Shouldn’t the SEC use a more appropriate term to identify the group that will perform the audits of public companies? For such persons to think they are “professionals” is an inflation of status, that a person of integrity would strive to avoid.

Mary Ellen Oliverio, CPA, Ph.D.
Lubin School of Business, Pace University, New York, N.Y.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



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