Auditor Independence. This case can also be used to discuss auditor independence. Auditor independence has received significant attention in the U.S. Walter Schuetze, then Chief Accountant to the Securities and Exchange Commission (SEC), wrote a pointed commentary, “A Mountain or a Molehill?” Several other SEC speeches and commentaries followed until November 2000 when the SEC adopted new rules governing the auditor’s independence. The amendments modernize the Commission’s rules for determining whether an auditor is independent in light of investments by auditors or their family members in audit clients, employment relationships between auditors or their family members and audit clients, and the scope of services provided …show more content…
AU Section 230, “Due Professional Care in the Performance of Work,” indicates that professional skepticism is an attitude that includes a questioning mind and a critical assessment of audit evidence. Section 230 also indicates that, “The auditor neither assumes that management is dishonest nor assumes unquestioned honesty. In exercising professional skepticism, the auditor should not be satisfied with less than persuasive evidence because of a belief that management is honest” (paragraph .09). Therefore, an audit team must objectively evaluate observed conditions and audit evidence, and follow up any potentially negative indicators to determine whether or not financial statements are free of material misstatement.
(a) What factors in the auditor-client relationship can put the client in a more powerful position than the auditor?
(b) What measures has and/or can the profession take to reduce the potential consequences of this power imbalance?
(a) The following factors can lead to a power imbalance between the client and the auditor:
• Clients, typically financial management, select the auditor, determine the compensation, and have the authority to terminate the auditor.
• To conduct an effective audit, the auditor must maintain a good working relationship with the client. In fact, the auditor must have the client’s assistance, and the auditor is often in a position where the auditor must rely on the client to provide needed