What should be done to enhance audit objectivity?

By Carol W. Kirwan, CPA
MACPA Director of Technical Services and Regulatory Affairs

NOTE: The following article represents the author's impressions of a presentation by Andrew DuBoff, CPA, vice president of the New Jersey State Board of Accountancy, at the Regional Meeting of the National Association of State Boards of Accountancy (NASBA).

Technical / procedural matters

The standard setting process is in need of overhaul. However, standard setting should be left in the private sector. The professional standards should be principle-based in lieu of detailed rules. Rather than focus on the specific structure to determine if it is technically correct, the question in the final analysis is, does it make sense? Too often we are tied up in the details of technical compliance with professional standards and fail to realize if the principle concept is observed. With the increasing trend toward globalization, global uniformity in the audit process is needed. The United States should take a lead role in that development. In any event, the standard setting process needs to be streamlined with a balance between due process and speed.

The reporting model should be improved to gain clarity and relevancy rather than obscurity. Reporting should be timely as events occur rather than in terms of calendar quarters. Investors should know promptly of important transactions that occur on April 1, rather than waiting months. Timely reporting is important to allow investors to make informed decisions.

The audit committee should have more selective membership. It should be comprised of people capable of making decisions — an auditor, CPA, securities attorney or others with experience and familiarity with the financial reporting process. The audit committee should have greater independence from management of the entity. It also should have increased interaction with the external auditors.

The auditors should place greater emphasis on the team approach to the audit to avoid the "lone ranger" situation. The key problem is not the size of the fee or the relevance of that fee to the firm. It is the key auditor on the audit for whom this is a career client. No one individual is smarter than the whole team. One individual should not have to risk a career by standing up to the client. Auditors should give renewed attention to the economics of the engagement. We cannot outlaw low-balling of audits. But now is the time to put an end to it. It leads to cutting corners. There was never a better opportunity for firms of all sizes to eliminate low-balling — it leads to substandard audits.

Regulatory / disciplinary matters

A prohibition of non-audit services should include information technology design and implementation services and internal audit services. An overall ban is not advisable. It increases costs and decreases efficiency and expertise. It penalizes the client and does not benefit the public.

A new regulatory structure will be formed that is independent of AICPA. A majority of the board will be comprised of public members. The structure will be designed to provide more effective and independent peer reviews and it will include an enhanced disciplinary process.

Regulators were advised to stay abreast of developments and to monitor legislation. It is dangerous for states to act on their own. It creates disparity between states.

This content has not yet been Rated.

To Rate content, please Login.