Question

The debate of whether an auditor who performs non-attest services (e.g. Consulting) for an audit client will have their independence impaired has been going on for some time in the accounting profession. While Sarbanes-Oxley Act of 2002 expressly restrict auditors from performing consulting and other non-attest services for their audit clients, the AICPA does not have such stringent restrictions.

Required: Present an argument why you believe that performing non attest services for an audit client would or would not impair an auditor’s independence for audits performed under either the PCOB auditing standards OR the AICPA auditing standards.

Answer 1

The performance of consulting and other non attesting services for the Audit clients always have the risk of impairing the Auditors' independence for the audit work.

The risks of Auditor's independence getting impaired from no attest or consulting service comes up from the facts that the engagement for the non attest service is not very clear regarding the roles and responsibilities of the auditor and the client.

For example, in consulting service , it is mostly expected that the consultant (Auditor) defines and suggests management decisions , it is also expected that the consultant remains responsible for the outcomes and also the service results are evaluated. All these expectations from client results pressure on consultant to improve performance and that may impair the independence as the auditor. So donning two hats may always bear the risk that the pressure for performance may impair the auditors' independence.

The independence of auditor can be preserved even performing  non attest service , only when there is a clear expectation of defined scope of consulting work where the overseeing of the non attest service is done by a competent senior employee of the client, the management decision are taken by the client and the evaluation and responsibility of the service outcomes remain with the client. However, implementing such clear guideline and scope in really difficult in practical situations and we may say that SEC is correct in prohibiting auditors in performing  non attest service for the audit client .