Auditor Independence and Analysts’ Forecast Characteristics: Proof of Impairment of Goodwill

SYNOPSIS The objective of this paper is to provide a systematic evaluation of independence as a foundational element of the auditing profession. We maintain that while independence is a theoretically appealing construct, it is fraught with practical problems surrounding its implementation, monitoring, and regulation. We analyze the current oversight of auditor independence and evaluate the need for auditor independence from the perspective of information users and information producers. In the process, we discuss important implications and intractable challenges that affect one or more parties involved in the financial-reporting process. Finally, we carefully evaluate alternatives to the current regulatory approach for managing auditor independence (i.e., proscribing various auditor-client relationships). We conclude that increasing audit committees' responsibilities for monitoring the auditor's independence—along with additional disclosure about threats and safeguards to auditor independence—is worthy of further consideration and debate as a path toward addressing the auditor independence conundrum.

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A Proposed Framework Emphasizing Auditor Reliability over Auditor Independence

Accounting Horizons ◽

10.2308/acch.2003.17.3.257 ◽

2003 ◽

Vol 17 (3) ◽

pp. 257-266 ◽

Cited By ~ 31

Author(s):

Mark H. Taylor ◽

F. Todd DeZoort ◽

Edward Munn ◽

Martha Wetterhall Thomas

Keyword(s):

Public Interest ◽

Auditor Independence ◽

Public Confidence ◽

Sufficient Condition ◽

Necessary And Sufficient Condition ◽

Accounting Profession ◽

The Public ◽

Necessary And Sufficient

This paper introduces an auditor reliability framework that repositions the role of auditor independence in the accounting profession. The framework is motivated in part by widespread confusion about independence and the auditing profession's continuing problems with managing independence and inspiring public confidence. We use philosophical, theoretical, and professional arguments to argue that the public interest will be best served by reprioritizing professional and ethical objectives to establish reliability in fact and appearance as the cornerstone of the profession, rather than relationship-based independence in fact and appearance. This revised framework requires three foundation elements to control subjectivity in auditors' judgments and decisions: independence, integrity, and expertise. Each element is a necessary but not sufficient condition for maximizing objectivity. Objectivity, in turn, is a necessary and sufficient condition for achieving and maintaining reliability in fact and appearance.

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The Effects of Corporate Ownership on Public Accountants' Professionalism and Ethics

Accounting Horizons ◽

10.2308/acch.2002.16.2.109 ◽

2002 ◽

Vol 16 (2) ◽

pp. 109-124 ◽

Cited By ~ 21

Author(s):

William E. Shafer ◽

D. Jordan Lowe ◽

Timothy J. Fogarty

Keyword(s):

Current Trend ◽

Auditor Independence ◽

Corporate Ownership ◽

Negative Effects ◽

Public Accounting ◽

Corporate Acquisitions ◽

Accounting Professionals ◽

Research Questions ◽

And Control ◽

First Time

The current trend toward corporate acquisitions of CPA firms poses potential threats to the autonomy and ethical standards of public accounting professionals. This recent consolidation movement suggests that for the first time a significant number of public accounting professionals are subject to the supervision and control of nonprofessionals. In addition to acknowledging the potential threats to auditor independence and objectivity, this paper suggests that these new organizational arrangements for the provision of public accounting services have other negative effects on professionalism and ethics such as desensitizing CPAs to traditional professional values, and subverting professional institutions to the goals of corporate employers. This paper develops a framework that identifies several specific research questions related to the effects of corporate ownership on professionalism and ethics in public accounting.

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