A plaintiff’s attorney and an accounting expert are going to be very reluctant to put forward an argument that they have a chance of not being able to sustain and detract from a very solid case.
And if the firm had gone ahead and insisted on investigation of that audit difference, it would havecertainly delayed the earnings announcement, angered management, and it would be likely they wouldn’t get the consulting engagement.
Absent members of the audit team coming forward and saying, “Yes, we admit it. Our independence was impaired,” you really can’t, even looking at that extreme and what I regard as a very egregious situation, come in and say independence has been proven to be impaired because of consulting.
— I won’t relay the point in the statement — that at one point I favored internal audit out-sourcing for the same reasons as the CPA firms have testified. It seems like it has a potential for improving audit effectiveness.
Having seen some cases where it has actually worked in operation, it’s my conclusion that the independent audit did not benefit in any way from the internal audit out-sourcing and that the involvement in being an arm of management, which internal auditors inevitably have to be, did, to some extent, impair independence.
So for those reasons, I would urge you that the restrictions on non-audit services are necessary. I don’t want to take too much time, but when I compare what’shappened with journalistic organizations that inevitably, when they become a part of larger organizations, there is, inevitably, a dilution of journalistic values. I think that can happen with CPA firms also.
MR. VERSCHOOR: Thank you very much for this opportunity to be present today. As a matter of introduction, my perspective is long-term. I passed the when, of course, it was much more difficult back in those days. And it’s varied.
And before I joined academia, I was an auditor with Touche Ross and their national education director for ten years and then was chief accounting officer and chief internal audit executive of several large international public corporations.
I am working on a case currently where the auditor failed to adequately investigate a very large audit difference detected near the end of the audit, and at the same time the firm was negotiating with the client for a very large consulting assignment
I would like to try to put a new thrust here that what we need to think about is better ethical performance. We have a code of conduct in the AICPA that really sets forth a lot of the things that we need to do, of which independence is one, but there are other indications.
John Biggs — where a lot of us in academics have, most of or much or some, at least, of our personal fortune –he went back to New York to work for us, and I’m glad to see that, he described an ethical dilemma.
The hole was there, and it’s the auditor that had the ethical dilemma didn’t want to spend the money to go out to take a look at the hole. He would have known that the hole was a hole if he would have ever looked, but he faced an ethical dilemma and made a poor ethical choice.
I agree with the thrust of what you’re attempting to do. I think the staff did an outstanding job of presenting the background of why we’re here. As a matter of fact, I think they may have even understated the case.