Date of Award

Spring 2001

Document Type

Legacy Thesis

Degree Name

Bachelor of Science (BS)

Department

Accounting

College

College of Business

First Advisor

Linda Henderson

Abstract/Description

My senior thesis is on auditor independence with a focus on providing consulting services to an audit client. Basically auditing is the function that gives reasonable assurance to the investors that the financial statements are free from material misstatement. This is important because it lowers the risk of the investment in that company's equity. This promotes accurate fund distribution and maximizes the efficiency of the economy as a whole. The importance of auditor independence to this is that an auditor must be free from outside influences in order to provide proper assurance of the financial statements. Providing consulting services to an audit client has its positives and negatives. Some of the positives include synergies from combined knowledge, overlapping skill sets, and preserving free choice of the best supplier of services. Some of the negatives include consulting fees that are much higher than auditing fees and the fact that the auditors will have to evaluate th eir own company. Both of the negatives lead toward possible conflicts of opinion for the auditor. The SEC was initially concerned with auditor independence for a number of reasons including the S&L scandal and the Pricewaterhouse Coopers investment issue. The opinion of the GAO is that the accounting profession is improving, but there is still reason for concern. The SEC modified its opinion by setting forth new standards in November of 1999. In these standards, they back off a little from their previously more aggressive stance. The accounting profession is happy with the new rules, but I believe that there should be a little more regulation going on. I recommend that the SEC implement a very strict penalty system to stop accounting firms from abusing their privilege before they start. This will ensure auditor independence in fact as well as appearance.

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