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Auditor independence: third party hiring and paying auditors

Auditor independence: third party hiring and paying auditors Purpose – Although the Sarbanes Oxley Act (SOX) has introduced rules to avoid auditor independence impairment, there are still issues that are not sufficiently solved. The purpose of this paper is to discuss the problems of auditor independence that arise by auditors being hired and paid by the auditee, and by SOX requiring rotation of only the lead audit partner. Design/methodology/approach – The paper takes the form of a discussion paper, exploring alternatives to overcome the mentioned issues of independence. Findings – The paper presents an alternative where auditors are hired and paid by an external third party. Besides this change, it also proposes a quality control system including the extension of the CPE program. A private entity in representation of the investors (e.g. Stock exchange) and an oversight board (e.g. PCAOB) as alternatives to hire, pay and control audit quality are discussed. Practical implications – This paper has implications for regulators, since it presents a new alternative for hiring and paying auditors that requires an active involvement of an independent third party. It also has implications for professional bodies by increasing their participation in monitoring and training its members. Originality/value – The paper presents an original alternative for avoiding independence issues derived by auditors being hired and paid by the auditee, and opens a discussion in a new solution to an old problem. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png EuroMed Journal of Business Emerald Publishing

Auditor independence: third party hiring and paying auditors

EuroMed Journal of Business , Volume 5 (3): 17 – Sep 21, 2010

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Publisher
Emerald Publishing
Copyright
Copyright © 2010 Emerald Group Publishing Limited. All rights reserved.
ISSN
1450-2194
DOI
10.1108/14502191011080827
Publisher site
See Article on Publisher Site

Abstract

Purpose – Although the Sarbanes Oxley Act (SOX) has introduced rules to avoid auditor independence impairment, there are still issues that are not sufficiently solved. The purpose of this paper is to discuss the problems of auditor independence that arise by auditors being hired and paid by the auditee, and by SOX requiring rotation of only the lead audit partner. Design/methodology/approach – The paper takes the form of a discussion paper, exploring alternatives to overcome the mentioned issues of independence. Findings – The paper presents an alternative where auditors are hired and paid by an external third party. Besides this change, it also proposes a quality control system including the extension of the CPE program. A private entity in representation of the investors (e.g. Stock exchange) and an oversight board (e.g. PCAOB) as alternatives to hire, pay and control audit quality are discussed. Practical implications – This paper has implications for regulators, since it presents a new alternative for hiring and paying auditors that requires an active involvement of an independent third party. It also has implications for professional bodies by increasing their participation in monitoring and training its members. Originality/value – The paper presents an original alternative for avoiding independence issues derived by auditors being hired and paid by the auditee, and opens a discussion in a new solution to an old problem.

Journal

EuroMed Journal of BusinessEmerald Publishing

Published: Sep 21, 2010

Keywords: Auditors; Outsourcing; Auditor's fees; United States of America; Europe

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