1 answer

The issue of whether the performance of nonattest (consulting) services for audit clients impairs independence of...

Question:

The issue of whether the performance of nonattest (consulting) services for audit clients impairs independence of the auditors has been widely debated within the public accounting profession. Restrictions on the performance of consulting are a major aspect of the Sarbanes-Oxley Act of 2002.

  1. Describe the restrictions that are placed on the performance of nonattest services for audit clients by the Sarbanes-Oxley Act of 2002.
  2. List arguments for restricting nonattest services for audit clients.
  3. List arguments against restricting nonattest services for audit clients.
  4. Present your opinion and support it with one or more of the arguments listed above.

Answers

SOLUTION:

A) Sarbanes-Oxley Act of 2002 prohibits the auditors from providing:

1) Bookkeeping or any other services that relate to the financial statements of the client.

2) Financial information design and implementation.

3) Fairness opinions, valuation or appraisal services, or contribution-in-kind reports.

4) Internal audit outsourcing services.

5) Actuarial services.

6) Investment advisor, broker or dealer, or investment banking services.

7) Human resources services or management functions.

8) Expert services unrelated to the audit.

9) Legal services unrelated to the audit.

B) There are many arguments that have been described for restricting performance of non-attest (consulting) services for audit clients, including:

1) It is not likely for the auditors to objectively assess their self non-attest services because they are involved in the audit. Thus, independence may be impaired.

2) The additional fees received from non-attest services provide an extra risk to auditor independence.


C) The arguments that have not been described for restricting performance of non-attest services include:

1) Auditors have been performing non-attests services for clients for many years in an efficient and unbiased manner.

2) The extra knowledge of the client gotten from providing non-attest services in fact improves the performance of the audit.

3) If the client has set up an efficient supervision of non-attest services, the auditor can carry them out in an efficient manner.

.

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