Why Good Accountants Do Bad Audits
Stacey Kay O. Fortuna 9:00 – 12:00, TTH November 29, 2011
Why Good Accountants Do Bad Audits The Article on Why Good Accountants Do Bad Audits specifies the different reasons why accountants and auditors have taken part – consciously and unconsciously – in different accounting scandals. The signing of the Sarbanes – Oxley Act of 2002 wishes to achieve corporate accountability. But the signing of this act doesn’t guarantee that accountants and auditors will not feed on their unconscious self – serving bias. Unconscious bias, unlike conscious corruption, would be hard to prove to court and serve jail time. That’s why as accountants and auditors who want to restore the confidence of the public in the accounting profession, we should go beyond the provisions of the Sarbanes – Oxley Act and apply practices that recognize the existence of bias and minimize its effects. There are three aspects of accounting that create opportunities for bias and influence judgment: Interpreting information in different ways (Ambiguity); Favoring clients with whom accountants built relationships (Attachment); Accountants involuntarily endorse others biased judgments to align it with their own (Approval). Aspects of human nature can also affect how auditors form bias. Familiarity: providing better results to people you know; Discounting: auditors hesitate to issue critical reports due to possible loss of employment, damaged relationships, etc.; Escalation: several minor indiscretions turning into bigger problems and are concealed. These facts stated, the question is what are the practical remedies to reduce, or possibly eliminate bias? The authors have several suggestions. True auditor independence through not providing consultation and auditing services to one company at the same time may be a remedy. Also, the removal of the threat of unemployment when giving undesired results to clients and switching to different auditing firms when their contracts end are two other remedies the
Why Good Accountants Do Bad Audits The Article on Why Good Accountants Do Bad Audits specifies the different reasons why accountants and auditors have taken part – consciously and unconsciously – in different accounting scandals. The signing of the Sarbanes – Oxley Act of 2002 wishes to achieve corporate accountability. But the signing of this act doesn’t guarantee that accountants and auditors will not feed on their unconscious self – serving bias. Unconscious bias, unlike conscious corruption, would be hard to prove to court and serve jail time. That’s why as accountants and auditors who want to restore the confidence of the public in the accounting profession, we should go beyond the provisions of the Sarbanes – Oxley Act and apply practices that recognize the existence of bias and minimize its effects. There are three aspects of accounting that create opportunities for bias and influence judgment: Interpreting information in different ways (Ambiguity); Favoring clients with whom accountants built relationships (Attachment); Accountants involuntarily endorse others biased judgments to align it with their own (Approval). Aspects of human nature can also affect how auditors form bias. Familiarity: providing better results to people you know; Discounting: auditors hesitate to issue critical reports due to possible loss of employment, damaged relationships, etc.; Escalation: several minor indiscretions turning into bigger problems and are concealed. These facts stated, the question is what are the practical remedies to reduce, or possibly eliminate bias? The authors have several suggestions. True auditor independence through not providing consultation and auditing services to one company at the same time may be a remedy. Also, the removal of the threat of unemployment when giving undesired results to clients and switching to different auditing firms when their contracts end are two other remedies the