Cpa's Conflict of Interest

Topics: Auditing, Audit, Internal audit Pages: 7 (2311 words) Published: April 6, 2013
CPA’s conflicts of interest
In doing business, companies always seek for high revenue and profit to distribute them as profit or dividends. To survive in the market that has high intensity of competitive rivalry, companies have to manage client relationships to maintain their existing clients and to get prospective clients. However, Certified Public Accountant (CPA)’s work is to verify whether a client’s financial statement is presented fairly. Since auditors’ work ideally allows stakeholders to make informed decisions, independence is a crucial ethic for auditors when they render professional service. In professional aspects, sometimes, to maintain client relationships may create "conflict of interest", the situation that personal or financial interest makes difficulties to the CPAs to fulfill their works fairly. According to The American Institute of Certified Public Accountants (AICPA) Code of Professional Conduct, which is clearly stated that a profession should maintain honesty, provide service with free of any prejudices, and should not sway professionals' judgments in favor of others. Obviously, auditors have to determine the suitability of accepting or continuing the audit engagement regarding to the conflict of interest, evaluate the conflict of interest issues appropriately before a commencement of the engagement, as well as performed appropriate re-evaluation procedures during the audit work. This practice reinforces a profession to maintain their independence. Withdrawing from an engagement is necessary when such evaluation concluded that the conflict of interest is developed. However, when considering a company’s lucrative income, auditors are in a big dilemma to maintain their independence; consequently, in an auditing firm, the conflict of interest is very difficult to manage as a business firm. Normally, a company’s shareholders appoint an external auditor. The company has freedom to choose its director base upon many factors, for example, an audit fee, services, a CPA firm’s reputation, or even likelihood that the auditor will certify an unqualified audit opinion. Under this situation, an auditor is induced for bias or independent issues on audit works performed to satisfied client. Interest can lead to bias when evidences or any information is evaluated. People may select or concentrate on evidences or information that likely support their conclusions, as well as disregard or intentional overlook the evidences or information that oppose their conclusions. Since audit procedures are very complicate, auditors have to work on a lot of information crossing many departments in client firms, consequently, supporting documents from client normally synthesis from a lot of data. Auditors have to use their best skeptics on interpretation to verify the information. Sometimes, auditors tend to interpret the evidences in flavor of their conclusions. Accountability is one of the factors that sways CPAs’ judgment. Normally, when people do not know the requirements of business partnership they can completely justify their evaluation with free of bias. Conversely, when the requirements are known, people tend to decrease their ponderous process and conclude their judgment by conforming with the known requirements instead. There are some difficulties in accounting treatment which generally accepted accounting principles (GAAP) did not provide clearly practice or method. These gray areas need interpretations and judgments, which may be kind of loophole for people to justify these in supporting their aspects. The research clearly shows that when auditors known preferences of people that they are accountable for, their judgments tend to be compatible with those preferences. For example, generally clients always expect an unqualified audit opinion; auditors tend to do so to make their clients satisfied. To maintain clients’ relationships can benefit to a company in the long run. An auditing firm can increase audit fee,...

Cited: Bazerman, Max H, George Loewenstein, Don A. Moore, and Lloyd Tanlu. Auditor Independence, Conflict of Interest, and the Unconscious Intrusion of Bias. Boston, Mass, 2003. Electronic.
Benston, George J
Enron and Arthur Andersen: the Case of the Crooked E and the Fallen a. DigitalCommons@Bryant University, 2006. Electronic.
Gordon Housworth
The Enron-Andersen Regulatory Review to Strengthen Auditor Independence. Universiti Teknologi Malaysia, 2004. Electronic.
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Conflict of interest Essay
  • Conflict of Interest Essay
  • Conflict of Interest Essay
  • Conflict Interest Essay
  • Essay on conflicts of interest
  • Conflict of Interest Essay
  • What Is Conflict of Interest Essay
  • Essay about MHA 614 Conflict of interest

Become a StudyMode Member

Sign Up - It's Free