What exactly is accountant independence? I have determined that accountant independence is very similar to being an independent auditor. When it comes to auditor independence, it refers to the independence of the internal auditor or the external auditor from parties that may have a financial interest in the business being audited. The initial concept of auditor independence was developed in the 19th century, which primarily originated with the British. In that era, British investors didn’t allow auditors to work in the businesses that they audited. The initial concept began to change in the early 20th century due to the shift in capital from foreign to domestic sources in the railroad, mining industries and the inventions of the telegraph and telephone. As time passed to the 1970’s, FASB was established as the authoritative independent accounting standards setter. In the second half of the 20th century there were ongoing debates about accountant independence. Thomas A. Lee, in Company Auditing, 3rd ed. (Van Nostrand Reinhold, 1986, page 89), said, “An honest auditor will behave like someone who is independent, using independence to mean an attitude of mind which does not allow the viewpoints and conclusions of its possessor to become reliant on or subordinate to the influence and pressures of conflicting interests.” This statement was very admirable but didn’t include the auditor’s state of mind as they audited. On the other hand, P. Moizier, in “Independence” (in Current Issues in Auditing, Publishing Ltd., 1991), argued for an economic rationale for auditor independence. He said “There is an expectation that the auditor will have performed an audit that will have reduced the chances of a successful negligence lawsuit to a level ...
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... used fraudulent accounting methods to hide the declining earnings in order to make the illusion that they were growing financially. They were underreporting line costs by capitalizing the cost on the balance sheet rather than properly expensing them, and inflating revenues with bogus accounting entries from “corporate unallocated revenue accounts.” Exodus 23:1 says, “Do not spread false reports. Do not help a wicked man by being a malicious witness.” These people obviously did not abide by the Bible and what it says. They were trying to take the easy way out and once again it backfired.
In 2002, President George Bush signed the Sarbanes-Oxley Act into law. This legislation was created in response to the high profile Enron and WorldCom financial scandals to protect shareholders and the general public from accounting errors and fraudulent practice in the enterprise.
Sarbanes-Oxley Act and Dodd-Frank Act are some of the most important regulations in the modern financial environment. The significance of these regulations is attributed to their focus on promoting the vitality of financial markets through addressing complexities in financial procedures and preventing financial wrongdoing. The enactment of these regulations was fueled by some financial irregularities in the corporate world and some major players in the financial markets. Despite the strong link between these laws and the financial markets, they have some similarities and differences in light of their respective objectives.
Consult PCAOB Ethics and Independence Rule 3520. What is the auditor independence, and what is its significance to the audit profession? What is the difference between independence in appearance and independence in fact?
Sarbanes-Oxley Act, which contains 11 sections, was originally created by Senator Paul Sarbanes and Representative Michael Oxley in response to the several exposed accounting scandals, including WorldCom and Enron as the most prominent examples. As a result of these accounting scandals being exposed one after another, the confidence that investors had put in the capital markets collapsed overnight along with those companies that engaged in huge frauds. Sarbanes-Oxley Act of 2002 had been passed to redeem the reputation of the markets. With its stated purpose, which is “to protect investors by improving the accuracy and reliability of corporate disclosures,” SOX Act came into effect in 2004. However, the deadlines of compliance have been extended several times due to the significant costs incurred by companies’ compliance of the SOX Act. In addition to the dollar amount required to spend, another real cost that cannot be ignored. As stated by Peter Bible, the CAO of General Motors Corp, “having ...
Consistent accounting and financial frauds in the U.S. alerted the SEC to the imperative need for policy and corporate governance changes. The Sarbanes-Oxley Act in 2002 was enacted to encourage financial disclosures, enhance corporate responsibility, and combat fraudulent behaviour. This Act also helped create the PCAOB, which oversees the auditing practice (Stanwick & Stanwick 2009).
On the September 25, 2002 issue of BusinessWeekOnline.com, the Accounting Wars Powerful auditor-consultants are the target of Arthur Levitt’s crusade articles defined “Independence to mean, CPAs cannot audit their own or their partners' work….…..clear and honest information is dependent on the CPAs independence……an auditor must not have any financial stake in the health, or even survival, of a client company.”
The Sarbanes-Oxley Act was enacted on July 30, 2002. It was enacted by the 107th United States Congress. It is named after sponsors U.S. Senator Paul Sarbanes and U.S. Representative Michael G. Oxley. It is also known as the ‘Public Company Accounting Reform and Investor Protection Act’ in the Senate and ‘Corporate and Auditing Accountability and Responsibility Act’ in the House. The main purpose of this act was to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other purposes. This act was enacted as a result to a number of corporate and accounting scandals including those affecting Enron, Tyco internationals, Adelphia, Peregrine Systems, and WorldCom. The Securities Exchange Commission (SEC) adopted many rules in order to implement the Sarbanes-Oxley Act.
The rise of Enron took ten years, and the fall only took twenty days. Enron’s fall cost its investors $35,948,344,993.501, and forced the government to intervene by passing the Sarbanes-Oxley Act (SOX) 2 in 2002. SOX was put in place as a safeguard against fraud by making executives personally responsible for any fraudulent activity, as well as making audits and financial checks more frequent and rigorous. As a result, SOX allows investors to feel more at ease, knowing that it is highly unlikely something like the Enron scandal will occur again. SOX is a protective act that is greatly beneficial to corporate America and to its investors.
Michael - Even with the many rules that existed, regulators responded the business scandals by passing the Sarbanes-Oxley Act of 2002. The act set new and improved standards for all U.S. public compani...
Throughout the years, the news covered stories of corporate scandals involving accounting unethical practices. These unethical corporate acts had a tremendous negative impact on these company’s stockholders, investors, employees and the whole U.S. economy. Most of these scandals would have been prevented, if the independent audits of these companies were conducted in an ethical manner. With this in mind, two corporate scandals will be the subjects of further review to understand that an auditor might encounter ethical dilemmas, if independence and objectivity are not part of the audit process.
The Act of Sarbanes Oxley of 2002 was enacted in July 30, 2002. This reform is designed to cover all public company boards, management and public accounting firm.
The AICPA Code of Professional Conduct defines independence as consisting of independence of mind and independence in appearance. According to the AICPA Code of Conduct, Section 55 Article IV, An accountant member should maintain objectivity and be free of conflicts of interest in discharging professional responsibilities. Moreover, a member who practices their accounting work in a public firm should be independent in fact and appearance when providing auditing and other attestation services (aicpa.org). According to the case study What Lies Beneath, I think that Betty did not show her professional skepticism since she built trust on her client, which she could not have as an auditor. As an auditor,
Unethical accounting practices involving Enron date back to 1987. Enron’s use of creative accounting involved moving profits from one period to another to manipulate earnings. Anderson, Enron’s auditor, investigated and reported these unusual transactions to Enron’s audit committee, but failed to discuss the illegality of the acts (Girioux, 2008). Enron decided the act was immaterial and Anderson went along with their decision. At this point, the auditor’s should have reevaluated their risk assessment of Enron’s internal controls in light of how this matter was handled and the risks Enron was willing to take The history of unethical accounting practic...
The ethical dilemma in this case is one that Daniel Potter is faced with. Daniel is a staff
Rather than being sticklers for following GAAP accounting principles and internal controls, this company took unethical behavior to a whole new level. They lied when the truth would have been easier to tell. It is almost as if they had no comprehension that the meaning of the word ethics is “the principles of conduct governing an individual or a group (professional ethics); the discipline dealing with what is good and bad and with moral duty and obligation”, (Mirriam-Webster, 2011). To be ethical all one has to do is follow laws, rules, regulations and your own internal moral compass, all things this company seemed to know nothing about.
...pendence, whether pro forma or substantially, the quality of professional assurance service of professional accountants will be doubted by public and that will probably lead to serious results. The factors affecting independence of external auditors are multiple. Market competition among external auditors and the imperfection of laws regulated the external auditing industry are tow of most important factors. In order to maintain and guarantee the independence of external auditors and try to avoid the scandals like Arthur Andersen, some research on how to improve and maintain the independence of external auditors are necessary. It is possible for researchers to put emphasis on how to control the market competition among auditing organizations and enhance the ability of accounting regulators to supervise and manage the professional accounting industry in the future.