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The auditor independence rule is documented in the AICPA Code of Professional Conduct that explains the principle. According to the AICPA (2014), a member in public practice shall be independent in the performance of professional services as required by standards promulgated by bodies designated by Council (p. 38). The purpose of this discussion post is to explain why independence is important for a Certified Public Accountant (CPA) and discuss the examples of auditor independence issues in public companies.
The auditor independence principle is essential because it ensures that the audit opinion on financial statements is objective, honest, and unbiased. Moreover, independence is a crucial aspect of an auditors professional identity, as it challenges the expert to efficiently apply safeguards, reduce the threats, and address ethical conflicts (Sana et al., 2019). The CPAs need for independence is unique compared to other professions because it requires unbiased, ethical behavior and objectivity to produce reliable reports on financial statements. Independence ensures that auditing services are free of conflicts of interest or relationships that might impair a CPAs objectivity (AICPA, 2014, p. 6). In contrast, other professions involve the reliance on policies and regulations for advocacy purposes and are less dependent on expert opinion.
In certain cases, the independence rule is not followed by auditors in public companies. For instance, the New York-based audit firm PricewaterhouseCoopers (PwC) did not comply with the principle in 2019 (Ketz, 2020). The U.S. Securities and Exchange Commission (SEC) discovered evidence of the violation of auditor independence. Namely, the SEC reported 19 activities involving internal co-sourcing, as well as the development or implementation of various software projects (Ketz, 2020). Another case of compromising auditor independence is represented by RSM US LLP, a consulting firm with headquarters in Chicago, IL. In 2019, the SEC recorded the violation of the independence principle because the company was offering non-audit services to several companies and promoted employment relationships with its clients affiliates. Overall, auditor independence is a crucial principle for CPAs that ensures the quality and objectivity of opinion on financial statements and might be violated by public companies due to the conflict of interest or co-sourcing.
References
AICPA. (2014). AICPA Code of Professional Conduct. AICPA. Web.
Ketz, J. E. (2020). The myth of auditor independence: Waking up to unconscious bias. The CPA Journal. Web.
Sana, A. K., Sarkar, S., Biswas, B., & Das, S. (2019). Auditing and assurance (2nd ed.). McGraw-Hill Education.
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