Thursday, December 31, 2015

Professionalism is Primary




In December 2003, Douglas R. Carmichael, Director of Professional Standards at the Public Company Accounting Oversight Board (PCAOB) was invited to speak about professionalism at the AICPA Annual National Conference in Washington, DC. In his presentation, he noted that: “Most organized professions have duties to clients and to the public. A lawyer has responsibilities to the court and the law as well as to individual clients. A doctor has responsibilities for public health as well as to individual patients. Poor management of duties to the public versus to individual clients can cause a lack of respect for a profession.”

Furthermore, “Some would say that is what happened to independent auditors. Intense pressure on the management of public companies to meet the earnings expectations of analysts led to intense pressure on auditors to help clients meet those expectations. There were economic incentives to preserve the relationship with the client. Building the client relationship had become the service ideal. Accommodation on questionable accounting practices was one result. There was a widespread erosion of professionalism and the profession lost the confidence of investors. This decline in professionalism did not happen overnight. Some would say it started decades ago.”

In concluding his presentation, he suggested:“One step that could be taken is to amend the ten basic auditing standards to add a new general standard that might be worded as follows: The auditor shall, in all matters related to the audit, act in a manner that places primary emphasis on protection of investors and the furtherance of the public interest in the issuance of informative, fair, and independent audit reports. This would make dedication to professionalism an overriding and mandatory obligation for the auditor of a public company.”