Are accounting firms biased when they audit the books of clients for whom they also perform consulting services? The Securities and Exchange Commission seems to think so. In hopes of checking a rising tide of accounting no-nos, the agency in June proposed new rules that would limit the consulting services that accounting concerns can provide to their audit clients.
Not surprisingly, America’s corporate chief financial officers mostly think the SEC’s concern is misdirected. Nearly 85 percent report that their companies have used their auditing firms as strategy consultants, in almost all cases because they preferred to, not because of a merger or acquisition. And almost 84 percent see no conflict of interest in the relationship.
But curiously, even though only about 12 percent of CFOs say that professional services firms should not be permitted to pursue consulting business from their audit clients, some 30 percent support the SEC proposal.
Nearly 99 percent of CFOs agree that the pressure on corporations to meet Wall Street’s quarterly earnings estimates is either “high” or “extremely high.” Almost 90 percent say this pressure contributes to accounting fraud. Indeed, a similarly overwhelming majority of CFOs say there’s more pressure to “beat the Street” now than there was ten years ago, compared with less than 2 percent who say the pressure has subsided and roughly 10 percent who report no change.
The heightened temptation in executive suites to play fast and loose with the numbers may stem more from the mercilessness of the market than from any conflicts facing sharp-eyed auditors. Unfortunately, the SEC can’t do very much to prevent that.
Does your company regularly use the same accounting firm as an independent auditor of financial statements and other documents that must be filed with the Securities and Exchange Commission or other regulators?
Yes 98.6%
No 1.4
If yes, have you also used the same firm at any time to consult on strategy or other business matters?
Yes 84.7%
No 15.3
If yes, please check one statement below to indicate whether you prefer to have the same firm perform auditing and consulting or other business functions.
Wanted same firm
for both 94.3%
Previously used
different firms for
each task, but now
use same because
auditing and
consulting firms
merged 1.9
Previously used
different firms
for each task, but
now use same
because of merger
or acquisition
involving my
company 3.8
In your opinion, does serving as a consultant for an audit client, or vice versa, compromise an auditor’s independence?
Yes 16.4%
No 83.6
Should professional services firms be permitted to pursue consulting business from
their audit clients or vice
versa?
Yes 87.7%
No 12.3
Do you support the SEC’s proposal to restrict professional services firms from performing certain consulting duties for their audit clients?
Yes 30.1%
No 69.9
Please rate, on a scale of 1 to 5 (with 5 being the highest), how prevalent you believe accounting fraud and
mistakes to be in corporate America today.
1 42.5%
2 38.4
3 12.3
4 5.5
5 1.4
How does this compare with what you believe the level was five years ago?
Higher 20.5%
Lower 20.5
No change 58.9
How does it compare with ten years ago?
Higher 31.5%
Lower 26.0
No change 42.5
Do you think that limiting the consulting services that professional services firms perform for their audit clients would help reduce the prevalence of accounting fraud and mistakes?
Yes 8.2%
No 91.8
Please rate the degree of pressure on public companies today to meet the financial community’s quarterly earnings expectations.
Extremely high 58.3%
High 40.3
Moderate 1.4
Low 0.0
Extremely low 0.0
How does this degree compare with what you believe it was five years ago?
Higher 76.4%
Lower 1.4
No change 22.2
How does it compare with ten years ago?
Higher 88.9%
Lower 1.4
No change 9.7
Do you think this pressure to meet expectations contributes to instances of accounting fraud or related improprieties?
Yes 88.9%
No 11.1
