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Auditor independence: a new structure is needed.

The Public Company Accounting Oversight Board, set up to check on accounting issues, has already begun to review some accounting firms.

While I feel this is a good first step, I wonder if this type of organization will get to the heart of the problem when it comes to auditor independence.

In my opinion, it is the financial relationship between the corporations and the auditing firms where the real problem lies.

For example, when Enron Corporation paid Arthur Andersen more than $25 million to do the audit, that could have altered the independence between the firm and Enron. One can see how a corporation can have an influence on the audit.

The financial relationship between a corporation and the CPA firm should be examined. Perhaps we need a different structure to obviate this financial relationship.

The structure I envision to mediate the effects of the financial impact on the audit would be what I call the General Auditing Council Board. It would be a seven-member board made up of auditing and legal professionals with offices in each state, reporting to the PCAOB.

The board would release auditing bids to auditing firms to perform the audit. Corporations would remunerate the GACB when the audit work is done and these fees would then be forwarded to the firm completing the audit.

Any problems with the audit would be resolved between the parties participating in the audit, the GACB or the PCAOB. The GACB would make the final resolution and would operate under GAAP and GAAS, as well as SEC and PCAOB rules.

Although there are many questions to be posed, this might be a first step in making the audit truly independent.

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Article Details
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Title Annotation:SpeakOut!
Author:Scribner, Donald R.
Publication:California CPA
Article Type:Brief Article
Geographic Code:1USA
Date:Jul 1, 2004
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