Conflicts of interest lead auditors to forsake principles
Incentives to keep clients happy create the preconditions for the self-serving bias to take hold
It is a bad time to be an auditor in SA, with several of the big four accounting firms heavily involved in a string of corruption and fraud scandals. Why has this happened? It is widely recognised that the root cause of these issues is the conflict of interest that is built into the auditing profession. While a number of regulatory changes are on the way designed to further curb such conflicts of interest, most of the proposed changes appear to reflect a misunderstanding of the problem. Conflicts of interest in auditing stem from the fact that auditors are hired by the companies they audit, and that the accounting firms that auditors work for might provide a range of additional — and lucrative — services for that company. This gives auditors an incentive to keep their clients happy. How do these incentives affect the quality of an auditor’s work? Whenever I ask accounting students this they tend to assume that conflicts of interest tempt auditors to consciously collude in deceiving ...
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