The Dual Roles Of CPA Firms

Arthur Anderson, one of the Big Five accounting firms, has been a major focus of these debates in recent months. Could the fact that in 2001, Enron paid Anderson “[…] $25 million for audit services and $27 million for consulting services” (Sternberg) have anything to do with the alleged illegal actions faced by Anderson? When a company, such as Anderson, relies so much on non-auditing revenue, can their audits really be independent and free from conflicts of interest?

For years, investors have relied on reviewing the financial statements o

In March 2002, the Securities and Exchange Commission will be holding roundtable discussions for two days. The agenda includes proposals for better protection of investors. These meetings will be open to the public and will also be broadcast on the SEC’s website (SEC Announces). Perhaps those who wish to make a difference and assist in restoring the integrity of the accounting profession should attend?

In recent years, a dramatic increase in the revenues accounting firms have earned from consulting services has raised a red flag about auditor independence. So what does the SEC propose? In June 2000, the SEC’s proposal would have forced a major restructuring of the accounting profession. The most crippling rule would prohibit accounting firms who perform audits for SEC requirements from providing most non-audit services for the same company and their affiliates. A few of the non-audit services include: system implementation, bookkeeping, internal auditing, and legal services (SEC Proposes).

What changes need to be made in order to restore not only the public’s confidence in audited financial statements but also an auditor’s independence from the companies that are paying their fees? If you ask the Big Five accounting firms, they will blame the companies. The accounting industry is largely self-regulated. Change is hard to take by many in this profession. However difficult change may be, it seems that this time, it is inevitable.

In a recent study conducted by Karen Nelson, from Stanford Graduate School of Business, the objectivity and auditor independence was analyzed. The researcher looked to see if there was more creative accounting among companies that paid their accounting firms large consulting fees compared to auditing fees. This study looked at the ratio of fees paid for non-auditing services versus auditing services. They found “that over half of the firms paid more for consulting services than audit services, and that 95 percent of firms purchase at lease some non-audit services from their auditor” (Stanford).

Some topics in this essay:
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