Auditing profession has always been challenging throughout the history. Among different challenges, I think the conflict of pursuing maximum business profit and maintaining trustworthy professional ethics is the biggest problem facing the auditing profession. There are several reasons that could explain why it is the biggest issue. First, the auditing profession’s competency is questioned when facing with lucrative revenue. We should never forget CPA firm itself is a business, whose objective is to obtain profit. Especially, in today’s competitive market, lots of firms pay more attention on searching new clients, keeping long-term client relationship, and expanding their specialty services in order to increase revenues rather than their quality of auditing services.
For example, an audit firm may accept a client from a new industry to expand its service. However, the firm may not have enough competent members or experienced engagement partner to work in the engagement group. As a result, it enhances the audit risk which directly relates to an audit failure.
Second, auditing profession’s objectivity, integrity, and independence get threatened when the auditing profession intents to please the client. Auditing profession may lie to maintain its good image. In addition, the auditing profession may lose their professional skepticism after working long time with the client. What is worse, the may uncover what the clients’ problems so as to not lose clients and revenues. Even though there is partner rotation requirement by standards, the partners in the same firm still have the equal responsibility to the business and motivated by the same profit earning purpose.
Third, auditing profession also has difficulty making ethical judgment when it closely related to its own benefit. For example, when fraud is detected, auditing profession has the responsibility to communicate to audit committee, but there is no obligation for auditor to disclose the fraud outside of the client for client’s sake. The auditing profession would rather cover the fraud than blow it out, because the fraud investigation will cause expensive lawsuit, serious revenue loss and reputation damage. After the issuance of Sarbanes-Oxley Act, the restricted standards regulated the auditing services provided to public company. It somehow slows down the pace that auditing profession exploiting revenue from clients, but this fundamental conflict between the business and ethics still exists. I think there are ways to mitigate the problem. First, since the issue is raised by competitive market of getting clients and expanding services, PCAOB and AICPA should put an emphasis on market inspection.
Auditing profession should be largely evaluated based on how well they follow ethical standards rather than how much annual profit is. Rate the firm by evaluating its ethical policy and practice. The one which has the most ethical reputation in the market ultimately will get more clients’ attention and preference. In addition to the business environment, there should be a peer review system for auditing service. Bringing in competitor to the firm to watch the quality control and learn from each other is a good way to keep firm stay in the ethical track under the peer pressure.
Also, the professional ethical standards should consider more about the public benefit than the client’s confidentiality. I think there should have some changes to the fraud communication in the regulation. Creating certain compensation reward could motivate auditing profession to maintain its trustworthy roles without trapping into ethical dilemma. In conclusion, the biggest problem facing auditing profession should not be totally resolved, unless each of the auditing profession can outweigh the public interest over their own profits in a high-level ethical standard.