Do you believe that auditors can be sufficiently independent and objective when the auditee is also a client and is paying the auditor's fees?

Week 1 Discussion Questions


Reminder – I do not allow direct quotes in student’s work in this class.  You need to paraphrase and cite your outside sources.  “Outside sources” do not include the text and so you don’t need to cite it. 


1)           GAAS standards emphasize the critical importance of auditor independence and objectivity, as does the definition of auditing.  Do you believe that auditors can be sufficiently independent and objective when the auditee is also a client and is paying the auditor’s fees?  Why or why not?  Answer in your own words and defend your position.

Hint – I want you to consider both the auditor’s and the client’s incentives to provide a high quality and aggressive audit under these conditions.  By “aggressive” I mean an audit that is willing to question the client’s accounting procedures when appropriate.


2)           The text discusses several legal forms of organization – proprietorship, general partnership, general corporation, professional corporation, limited liability company, and limited liability partnership.  Should states limit the form of organization that CPA firms can use and why?  If so, which forms should be prohibited and why?  Ignore taxation issues and focus on the different liability levels of the different forms of organization.  Answer in your own words and defend you choices.

Hint – The key to this question is the differences in personal liability to the auditor partners who are in charge of the audit as well as other partners in the firm for audit errors.  The chapter isn’t completely clear on the key differences in legal liability.  Here is a quote from Chapter5, page 118, where they state the issues more clearly:


“Generally, the partners, or shareholders in the case of a professional corporation, are jointly liable for the civil actions against any owner.  It is different, however, if the firm operates as a limited liability partnership (LLP).a limited liability company (LLC), a general corporation, or a professional corporation with limited liability.  Under these business structures, the liability for one owner’s actions does not extend to another owner’s personal assets unless the other owner was directly involved in the actions of the owner causing the liability.  Of course, the firm’s assets are all subject to the damages that arise.”

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