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Auditors' Willingness to Advocate Client-Preferred Accounting Principles

Journal of business ethics, 2004-07, Vol.52 (3), p.213-227 [Peer Reviewed Journal]

Copyright 2004 Kluwer Academic Publishers ;Copyright (c) 2004 Kluwer Academic Publishers ;ISSN: 0167-4544 ;EISSN: 1573-0697 ;DOI: 10.1023/B:BUSI.0000037530.25174.30 ;CODEN: JBUEDJ

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Title:
Auditors' Willingness to Advocate Client-Preferred Accounting Principles
Author: Shafer, William E. ; Ketchand, Alice A. ; Morris, Roselyn E.
Subjects: Accountant independence ; Accounting firms ; Accounting interpretations ; Accounting policies ; Accounting principles ; Advocacy ; Audit committees ; Auditing ; Auditing standards ; Auditors ; Business audits ; Business ethics ; Business studies ; Client relationships ; Compliance ; Customers ; Ethics ; Fair presentation ; Financial accounting ; Financial audits ; Financial reporting ; Financial risk ; Financial statements ; GAAP ; Generally accepted accounting principles ; Hypotheses ; Ideology ; Internal audits ; Judgement ; Moral judgment ; Principles ; Professional standards ; Staff accounting bulletins ; Studies
Is Part Of: Journal of business ethics, 2004-07, Vol.52 (3), p.213-227
Description: This paper argues that independent auditors have lost sight of their obligation to be truly impartial, and have increasingly adopted an attitude of client advocacy. We argue that auditors have a professional obligation to go beyond merely passing judgment on whether client accounting methods are acceptable under GAAP, and to judge whether the principles adopted are the most appropriate under the circumstances. We then review recent evidence which suggests that auditors have abandoned this objective in favor of advocating client-preferred principles. The results of a survey of public accountants employed by small CPA firms indicates that, in a scenario in which an auditor did not feel that the client's accounting treatment was the most appropriate under the circumstances but it was recognized as an acceptable alternative under GAAP, advocacy of the client-preferred approach is considered appropriate and is very likely to occur in practice. In less subtle cases (e.g., when the auditor did not feel that the client's treatment provided the best reflection of the economic substance of the underlying transactions), survey participants as a group were ambivalent regarding the appropriateness of client advocacy, and felt that subordination of judgment was likely to occur in practice. The results also indicate that engagement risk, or the risk that the firm will be harmed by aggressive behavior, affects judgments of both the appropriateness and likelihood of subordination of judgment. These findings suggest that auditors have adopted an ideology of client advocacy, within the constraints of engagement risk.
Publisher: Dordrecht: Kluwer Academic Publishers
Language: English
Identifier: ISSN: 0167-4544
EISSN: 1573-0697
DOI: 10.1023/B:BUSI.0000037530.25174.30
CODEN: JBUEDJ
Source: ProQuest One Psychology
AUTh Library subscriptions: ProQuest Central
Alma/SFX Local Collection

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Auditors' Willingness to Advocate Client-Preferred Accounting Principles

Copyright 2004 Kluwer Academic Publishers ;Copyright (c) 2004 Kluwer Academic Publishers ;ISSN: 0167-4544 ;EISSN: 1573-0697 ;DOI: 10.1023/B:BUSI.0000037530.25174.30 ;CODEN: JBUEDJ

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