BRING BACK ETHICS
The May 2012 edition of Accounting Today had several articles about auditor rotation. Dan Hood's editorial; Michael Cohn's cover article, "Hot topic, cool talk (mostly);" Bill Carlino's article, "The new breed of auditors;" and Miller & Bahnson's "Spirit of Accounting" all opined on the subject. I was awed by the fact that with all that space devoted to auditor rotation, there was not one word mentioned about ethics.
It is true that I have some old-fashioned ideas, and ethics is one of them, but it seems to me that the entire discussion of partner rotation hinges on ethics. If a partner practices ethically, it shouldn't matter how long they have serviced the client, or how familiar they have become with the principals and the operations of the firm being audited. If a partner practices ethically, there would be no question of their independence or conflict of interest. Dan Hood's quote is right on point: "Once upon a time, when asked who would guarantee the quality of audits, the accounting profession could reply, 'Our conscience.'"
It's sad that our once-proud profession has fallen into the morass of conditions of the general public, which appears to be concerned only with "Numero Uno." As Bill Carlino stated, "[Frauds] have become ingrained in the public lexicon of mammoth audit failures." In his article, he enumerates the new skills that an auditor in this century must have: "an IT pedigree, and a good knowledge of forensics, valuations and regulations, while maintaining the traditional degree of skepticism and professional judgment that are the foundations of audit and attest work." Ethics would be nice to be included in that listing.
All of the arguments for and against mandatory audit rotation are true: It will raise costs; it might, initially, diminish audit quality; it may cause some disruption to the business of the firm being audited; it might raise the question of independence; and on and on.
The bottom line in this entire debate is, how can we eliminate the audit failures? An oversimplified answer might be: Price the engagement realistically, staff the job suitably, supervise the work by the book, maintain the traditional degree of skepticism and professional judgment that are the foundations of audit and attest work, and, above all, be moral, principled and just. In other words ... be ethical.
Edwin J. Kliegman, CPA
Founding partner, Marcum LLP; Past president, NCCPAP
REPORT FROM A SMALL PRACTITIONER
I disagree with David Morgan's comments ("A panel member responds," June 2012, page 10) on Miller & Bahnson's report on the American Institute of CPAs, saying the AICPA represents the interests of the small practitioner. I agree with Miller & Bahnson, having practiced public accounting for 54 years with a small CPA practice. I dropped out of the AICPA because they were using my money against me. They did not represent the small practitioner with all of the regulations which they passed on to the state boards.
I used to do a lot of audits, but with the AICPA regulations, the peer review cost, and the increased cost of malpractice insurance, caused by the large firms treating everything as immaterial, the AICPA put me out of auditing. I used to audit the Boy's Club, Housing Authority, home owners' associations, small manufacturing companies, retail sales companies, etc. Now it costs me $8,000 so I can do a $4,000 audit. This did not help the small practitioner or the public. Audit costs have gone up and selection of firms has gone down. It only helped the large firms.
Richard E. Rochford, CPA, MBA
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