Made up of auditors and outsiders, the isb plans to issue guidelines and rulings to help the industry police the conflicts created by its nonauditing business. Senior partners readily admit that auditing is intensely price-competitive and often serves as a wedge to get in the door to sell other products. But they deny that standards have suffered and say firms have safeguards to protect auditors' autonomy. Another concern for regulators is the coziness that can develop between auditors and their clients. For reasons of career diversification and pay, many auditors switch over to the corporate finance staffs of their old clients.
Corporate books end up being audited by the executives' former partners.
The Big Five try to head off those problems by rotating a partner off an account every seven years and having a second partner, not involved in the audit, sign off on each account. But auditors will need to do more if they hope to regain investors' confidence. Corporate boards could go a long way toward helping by making sure audit committees consist of truly independent businesspeople. Let the public know whether the audit is the dog or the tail,'' urges accounting analyst Abraham J. Briloff. Investors have to understand that the safety net a clean-audit opinion provides can have big loopholes,'' warns Lawrence Revsine, an accounting professor at Northwestern University.