Question

Before issuance, most corporate and governmental bonds receive a credit rating that usually ranges from a high of triple-A down to B-. Nearly all bond ratings are issued by one of three credit rating services—Moody’s, Standard and Poor’s, or Fitch. A bond issuer selects and pays one or more of these companies to issue a credit rating on its bonds. Literally trillions of dollars are invested each year in the bond market, in part based on the credit ratings issued by these private, for-profit companies.

Because bond issuers select and compensate the rating services that evaluate their creditworthiness, these agencies have an overwhelming conflict of interest. Critics contend that these credit rating services enhance their ability to generate repeat business by giving bond issuers unduly favorable evaluations. Supporters of the current system disagree, noting that these companies’ survival depends upon them maintaining reputations for credibility and objectivity.

1. Do auditors face a similar conflict of interest in certifying their clients' financial statements?

Answer 1

Answer :-

For the question asked about the auditors conflict of interst in certifiaction of their clients financial statement, the answer is Yes.

It is not the conflict of Ethical interest that lead to such bias like credit rating agencies.It is the Personal interest thst plays the part in it.psychological research shows that our desires powerfully influence the way we interpret information,even when were trying to objective and impartial.When we are motivated to reach a particular conclusion,we usually do.without knowing it,we tend to critically scrutinize and then discount facts that contradict the conclusions we want to reach,and we uncritically embrace the evidence that supports our positions.Unaware of ojr skewed information processing, we erroneously conclude that our judgements are free of bias. For example, If someone says that you deservea higher raise than facts might suggest, you are more likely to come to agree with this view than you are to decide on your own that you deserve a higher raise.This kind of thinking implies that an auditor is likely to accept more from her client that what she might suggest independently.