Investors are more likely to invest, and pricing is more likely to be efficient, the greater the assurance that the financial information disclosed by issuers is reliable. For example, the final rule does not ban all valuation and appraisal services; its restrictions apply only where it is reasonably likely that the results of any valuation or appraisal, individually or in the aggregate, would be material to the financial statements, or where the results will be audited by the accountant.
As many commenters noted, however, the issues presented by this rulemaking are not new, 30 and recent and accelerating changes in the accounting profession and in society have made resolution of these issues more pressing.
These and other market changes highlight the importance to the market and to investor confidence of financial information that has been audited by an auditor whose only master is the investing public.
Accounting firms have woven an increasingly complex web of business and financial relationships with their audit clients.
These commenters argued, in essence, that there has always been the potential for a conflict of interest, since the auditor is paid by the client. Also, Grant Thornton recently sold its e-business consulting practice.
For us, the question is not whether an auditor who otherwise would be without bias will inevitably become biased and then intentionally disregard a false statement in a client's financial statements.
And auditor independence, in turn, can be threatened in numerous ways, only one of which is the provision of non-audit services. Finally, the amendments require most public companies to disclose in their annual proxy statements certain information related to, among other things, the non-audit services provided by their auditor during the most recent fiscal year.
If investors were to view the auditor as an advocate for the corporate client, the value of the audit function itself might well be lost. Volcker, the former Chairman of the Federal Reserve, in his testimony supporting our proposal, noted the real threat posed by the "insidious, hard-to-pin down, not clearly articulated or even consciously realized, influences on audit practices" that flow from non-audit relationships with audit clients.
The amendments identify certain relationships that render an accountant not independent of an audit client under the standard in Rule b. Our view on this point is quite different from the suggestion from the CEO of an accounting firm that we should wait to adopt restrictions on non-audit services until there has been "a train wreck or a stockmarket crash.
Non-Audit Services Create Economic Incentives that May Inappropriately Influence the Audit As explained above and in the Proposing Release, the rapid rise in the growth of non-audit services has increased the economic incentives for the auditor to preserve a relationship with the audit client, thereby increasing the risk that the auditor will be less inclined to be objective.
The likelihood of audit failure, in turn, is attributable to many factors, only one of which is auditor independence. Increasingly, accounting firms are becoming multi-disciplinary service organizations and are entering into new types of business relationships with their audit clients.
The Commission is an advocate of effective and independent audit committees. As part of these agreements, the financial services companies hire the employees, and in some cases the partners, of the accounting firm, and then lease back the majority or all of the assets and audit personnel to the "shell" audit firm.
Our approach also permits us to restrict non-audit services only to the extent necessary to protect the integrity and independence of the audit function. The proposed amendments to Rule included in the rule four principles for determining whether an accountant is independent of its audit client.
The Growth of Certain Non-Audit Services Jeopardizes Independence A common theme running through the reports described above is concern that future expansion of non-audit services may make regulatory action necessary. Accordingly, under the final rule, accountants will continue to be able to provide a wide variety of non-audit services to their audit clients.
Many who provided those perspectives nonetheless urged that we proceed with our rule. Registrants must comply with the new proxy and information statement disclosure requirements for all proxy and information statements filed with the Commission after the effective date.
Hawke, in testimony supporting our proposal to restrict internal audit outsourcing. We have had a greater string of "wins" in obtaining new audit clients since we sold our management consulting practice than we have had at any time in recent history - four new Fortune clients, including two Fortune 50 companies, just within the last six months.
The final rules provide accounting firms with a limited exception from being deemed not independent for certain inadvertent independence impairments if they have quality controls and satisfy other conditions.
Blumenthal stated, "Connecticut residents have personally experienced the financial hardship occasioned by the loss of independence and objectivity in the accounting profession. Leveraging the Audit Into Consulting Services" provides a step-by-step guide for auditors to become "business advisers" to their audit clients.
Increasingly, accounting firms are becoming multi-disciplinary service organizations and are entering into new types of business relationships with their audit clients. Professional malpractice premiums reflect the risk that the liability insurer will have to fund a judgment or settlement imposing money damages on the auditor.
It is therefore not enough that financial statements be accurate; the public must also perceive them as being accurate.MGT Assignment Week 3 Learning Team Assignment Values and Ethical Decision Making.
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