From the course: Accounting Foundations: Internal Controls
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Constraints on auditors
From the course: Accounting Foundations: Internal Controls
Constraints on auditors
- In order for an external audit to have validity, the external auditor must be independent of the company being audited. The Sarbanes-Oxley Act establishes strict requirements on auditors to ensure this independence. The relationship that an external auditor has with an audit client is a complex one. For example, the auditor is hired and paid to give an independent opinion of the company's financial statements. But it is the company itself that does the hiring and the paying. In order to conduct a good audit, the external auditor must have a detailed understanding of the audit client's business. But that detailed understanding also gives the professionals at the audit firm many ideas about how the client can better structure its operations, how the client can reduce its income tax obligations, and how the client can implement new information systems. For example, this was a big deal at Enron. If I remember the numbers…
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