Auditors Independence Case Study - 14460 Words

Academy of Management Review 2006, Vol. 31, No. 1, 10–29. CONFLICTS OF INTEREST AND THE CASE OF AUDITOR INDEPENDENCE: MORAL SEDUCTION AND STRATEGIC ISSUE CYCLING DON A. MOORE Carnegie Mellon University PHILIP E. TETLOCK University of California, Berkeley LLOYD TANLU MAX H. BAZERMAN Harvard University A series of financial scandals revealed a key weakness in the American business model: the failure of the U.S. auditing system to deliver true independence. We offer a two-tiered analysis of what went wrong. At the more micro tier, we advance moral seduction theory, explaining why professionals are often unaware of how morally compromised they have become by conflicts of interest. At the more macro tier, we offer issue-cycle theory,†¦show more content†¦Special interest groups preselect and even fund â€Å"independent† research to be made public at political gatherings and public conferences. Lobbyists seeking favorable legislation bend politicians’ ears, and corporations fill their campaign coffers.1 One could take the optimistic position that these conflicts of interest in the American corporate, medical, and political realm are for the most part innocuous, or that they often work to the clients’ benefit. After all, those most likely to have vested int erests are also those most likely to possess the most relevant expertise in a given field (Stark, 2005). For example, many both inside and outside the accounting industry have argued that an auditing firm is better equipped to handle a client’s complex accounting tasks when the auditor also has deep consulting ties to that client. Similarly, a stock analyst might argue, â€Å"I would not recommend buying a stock that I myself did not own,† and proponents of stock options might assert that giving managers stock options in their company ensures that these employees are financially tied to the fate of their firms. In addition, some experts believe that conflicts of interest are innocuous because, Of course, conflicts of interest are not unique to the United States. The successShow MoreRelatedA Critical View of the Audit Expectation Gap and Audit Rotation1828 Words   |  7 Pages(Porter, 1993). This lack of understanding is called expectation gap where the outcomes of the audit expected and its actual purpose varies. One solution to this fundamental issue is to reduce this expectation gap by providing a clear definition of auditors role and also the audit function that is required to be performed by him. However, during this defining phase, it is necessary to consider whether an audit rotation would reduce this audit expectation gap. This term, Audit Expectation Gap wasRead MoreAudit Committee Annual Evaluation of the External Auditor3135 Words   |  13 PagesAUDITOR’S INDEPENDENCE AND ACCOUNTABILITY IN NIGERIA PUBLIC ENTERPRISE This study seeks to identify the determinants of auditors’ independence in public enterprises and determine the policy implications of lack of auditors’ independence in the public sector. The data for the research was primary and collected via questionnaire from the Nigerian Ports Authority Headquarters Lagos. The questionnaire responses were analyzed using the percentage method. The hypothesis was tested usingRead MoreENRON Case Study1572 Words   |  7 Pagesthat crisis. Briefly justify each of your choices. Following parties are believed to be the most responsible for the crisis. With any big organization going so bad, the blame starts with the top level executives, there was no different in this case. 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The debate rested on the issue of audit independence , that is found toRead MoreWhy Is It Important for External Auditors to Be Independent? Relate Your Answer to the Primary Role of External Auditors. Give Examples of Specific Ways the Lack of Auditor Independence May Impact Adversely on an Audit.1638 Words   |  7 Pagesauditor independence may impact adversely on an audit. In 2001, there was an event that had shaken the whole business world. The crash of Enron in US, followed by worldwide collapse of its auditor, Arthur Andersen. It was a greatest corporate failure uncovered in business history. Follow the Enron-Andersen scandal, massive organizations like WorldCom, Xerox and Waste Management confront a similar fate. The debate rested on the issue of audit independence , that isRead MoreEssay on ZZZZ Best Company, Inc.: Case Study1340 Words   |  6 Pages------------------------------------------------- Case Study 2 ------------------------------------------------- Due Date: March 30,2010 ZZZ Best, Case 1. Ernst amp; Whinney never issued an audit opinion on financial statements of ZZZZ Best but did issue a review report on the company’s quarterly statements for the three months ended July 31, 1986. How does a review differ from an audit, particularly in terms of the level of assurance implied by the auditor’s report? There are numerous differencesRead MoreSarbanes Oxley Act # 11 Titles971 Words   |  4 PagesSarbanes-Oxley Act contains 11 titles, they provide specific guidelines and regulations for financial reporting. The titles are: Public Company Accounting Oversight Board (PCAOB), Auditor Independence, Corporate Responsibility, Enhanced Financial Disclosures, Analyst Conflict of Interest, Commission Resources and Authority, Studies and Reports, Corporate and Criminal Fraud Accountability, White Collar Crime Penalty Enhancement, Corporate Tax Returns and Corporate Fraud Accountability. In the introduction ofRead MoreAuditor Independence Is Defined By Mautz And Sharaf1905 Words   |  8 PagesAuditor independence is defined by Mautz and Sharaf (1961) as the formation of judgement, concluded through the state of an unbiased mind. Through demonstrated objectivity and truthfulness can auditors give a true and fair view about management’s financial statements. Due to the nature of the aud iting profession whereby services provided extend beyond concluding a true and fair view, coupled with the lack of a vital source of power results in auditors being unable to be truly autonomous. The purposeRead MoreAuditors Independence12377 Words   |  50 PagesOn Auditor’s Independence: A Study on ACNABIN, Chartered Accountants Auditor’s Independence A Study on ACNABIN-Chartered Accountants Firm Table of Content CHAPTERS PARTICULARS PAGES Chapter -1 Introduction 1.1 Introduction 1.2 Background 1.3 Scope of the Study 1.4 Objectives of the Study 1.5 Methodology of the Study 1.6 Limitation of the Study Chapter-2 Literature Review 2.1 DEFINITION OF AUDIT 2.2 Understanding Independence 2.3Read MoreWeek 8 Auditing II Essay1076 Words   |  5 Pagesï » ¿Chapter 7 Case – 7-54 Going Concern  Please respond to the following: From the e-Activity, analyze the auditor’s responsibility to determine if a company can continue as a going concern. From your analysis, propose at least two (2) key factors that the auditor should consider when determining an entity’s ability to continue as a going concern. Provide a rationale to support your proposal. SAS 59, The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern (AICPA, Professional