Question

Currently, audits are performed by public accounting firms for a fee that includes a profit component. Some members of the business community believe that the profit motive within audit fees or other allowable non-audit services provided by the audit firm compromises a public accounting firm’s ability to be truly “independent” of its clients. They propose that the audit function should be a governmental activity instead. Do you agree with the idea that the public accounting firms could be influenced significantly enough by profit motives to compromise independence? If yes, what other options (other than governmental involvement) might remedy such bias? If not, what is your argument to support keeping the audits with the public accounting firms?

Answer 1

Yes , it is true that the public accounting firms could be influenced significantly enough by profit motives to compromise independence. It is well know that the firm which is the auditor of the company should not have any financial interest or any other type of interest in the organisation. Because it will affect the independence of the auditor and the auditor will not be able to give an appropriate opinion on the financial statement of the company. If the public accounting firm have profit motive in the company in which they are appointed as an auditor than they will never give an inappropriate opinion on financial statements of that comany because they are interested in the profit of the comapny. So the auditor independence would be compromised in this case.

                  There are no such option other than governmental involvement for such issue. But one thing can be made that is appropriate laws and rules regarding independence of auditor should be made and there should be special mention of those activities or services that should not be performed by an auditor. So that the auditor independence will not be compromised and the auditor will able to give an appropriate opinion on the financial statement of an enterprise.