His independence is impaired because he has the power to now alter financial statement as principal accounting officer at Mallow and since he is performing work at HA for Mallow while was employed at Mallow. 3. Yes, I do believe that Duane Knight continuing to work on Mallow Resource’s 1993 audit when he already accepted a Job offer from them “tainted” the entire 1993 audit. Knight was not being independent – he clearly had an interest in Mallow Resources considering the fact that he would be holding a key position at the firm within a couple of weeks of working on the audit.
Also, he was participating in the audit on Mallow Resources! For example, he wrote memos on behalf of Mallow Resources on March 30, 1994 (while he was still at full-time employee of HA) related to “the resolution of the [audit] issue discussed with the SEC”. Clearly these dual roles can lead to a conflict of interest and consequently to “tainted” audits. 4. I do believe auditors should be allowed to work for their clients in the future – forever, not immediately following an audit.
I strongly believe in the “cooling-off period” in Title II, Section 206 of Serbians Solely stating that auditors may work for their clients however they must wait one year before accepting an offer from their clients. The audit will be tainted if “a member of management involved in overseeing financial reporting matters was the lead partner, the concurring partner, or any other member of the audit engagement team who provided more than ten hours of audit, review or attest services for the issuer within the one year period preceding the announcement of the audit of the current year’s financial statements. I think this rule is very fair because the main point of the existence of accounting firms is to ensure the general investing public that all financial statements are presented fairly. Accounting firms would not be able to ensure the public of anything if they had some direct ties with the firms they are providing audit or attest services for. Even though I do believe that auditors should have the right to work for their clients, I do see how this practice could cause potential problems regarding the auditing reversion, audit firms and audit clients.
It never looks good when a firm or members of an audit team are “too close” with their clients – this gives the appearance that perhaps you do favors for your clients or performance actions contrary to GAP because you are friends. The auditing profession is directly correlated with independence in order to make the investing public comfortable in knowing that whoever is giving their opinion on the financial statements is being completely honest and his point of view is not skewed in any way (ii, relationships could potential skew your opinion about a company).
Audit firms also want to stay in business, however if there are too many mishaps in which employees become too close with clients it could potentially ruin the audit firm’s business because no one will want to do business with an auditing firm that is going against GAP and the CPA code. Lastly, audit clients may sometimes want an auditor to turn a blind eye to something however, they also know the huge consequences [involving the SEC] of them doing so. Therefore, clients generally want an audit firm that they can trust and this is something audit clients look for when choosing an auditing firm.
