gregorygarver.com

[Homeslice]

isn't that blatantly a conflict of interest, because the financial income, well-being, and reputation of the auditing firm depends on these "independent audit" fees, and also relies on its reputation for public company audits in order to sell other lucrative consulting services?the idea of "independent" means "3rd party", so if money is exchanged, doesn't that make the "independent" auditing firm a 2nd party? the existence of these auditing firms depends on these fees, so isn't that clearly not "independence"? but my point is, why even have the risk of collusion when money is involved? you can say the risk is mitigated all you want, but it still isn't true independence.in response to the person who said "they (auditing firms) get paid anyway regardless of good or bad opinion", that's not true, because if the auditing firm discloses information about the auditee company that destroys its reputation and deflates its stock price, the auditee company may go bankrupt and there is no guarantee that the auditing firm will be paid after that. it's in the auditing firm's best interest to ensure the survival of the company they're auditing, and that creates a conflict of interest.in response to the third answer, the disappearance of "most" of the risk of conflict of interest shouldn't be enough. isn't it obvious that the most independent auditor should be the government, with no direct audit fee involved? this should be paid for through business taxes.

[miasophia]

The companies that hire these independent audit firms are often doing so because the government requires is (see Sarbanes Oxley). The auditing firm has no financial interest in finding good or bad data for any company because they will get paid either way. And some other company is going to need their services down the line too.

[los_martins]

It is not in the best interest of an auditing firm to cater to it's paycheck. Reputable firms are only reputable by being unbiased when auditing. You can search the Better Business Bureau for common complaints and or business ratings. A good place to seek advice on auditing services is your local university. Their business management department head should be able to at least refer you to a decent company that has some history.This type of service can draw in the 'cash grab and go' crowd, so be leary of discount service rates and newly opened shops without references.

[godged4521]

Auditing fees are not paid out based on how clean the company being audited ends up looking; they are either based on a flat fee or based on how much time is spent completing the audit, which may inspire companies to be more thorough in their audits. As far as reputation goes, Auditing firms would take the risk of being caught by the SEC and causing issues for both themselves and the companies they audit if they do not do a thorough job; this risk is usually enough to keep Auditing firms in line. A great example of an auditing firm trying to appease a company and getting caught is the example of Arthur Andersen and Enron. Enron's Auditing firm was Arthur Andersen, one of the "Big Four" accounting firms in the US. While Andersen was Enron's Auditor, they were also Enron's consulting firm as well, which brought in much bigger profits than the auditing side of the company. Andersen appeased the company on the Auditing side (making Enron's numbers look good when they weren't) in order to keep Enron's consulting business. When the truth about Enron was discovered (that their finances were far worse than what their accounting books showed), Arthur Andersen was also exposed for their part in verifying and certifying the numbers Enron was publishing. Andersen subsequently went bankrupt and no longer exists as an accounting firm. After the Enron incident, the SEC put in new regulations making it illegal for an auditing firm to also do consulting for the companies it audits.As far as anyone can tell, this change in accounting regulations has made the auditing profession trustworthy again. Auditing firms don't want to risk the fate of Arthur Andersen in order to get ahead a bit in the auditing market through shady accounting practices, and with consulting becoming a separate entity in most accounting firms, most of the conflict of interest has disappeared.

[MassiveMann]

I agree that an "independent audit" is almost meaningless. The existence of audited financials should only provide a very marginal level of comfort to the reader. Most auditing firms do have a professional reputation to protect, but they also know that if they give the company a qualified opinion, or too hard a time with its accounting practices, then the company will just get a different auditor next year.