Comments on File No. S7-13-00

I have the following comments:

In the general standard for Auditor Independence:

I agree that independence in fact and appearance should be maintained. I am shocked that accounting practitioners and educators do not see the relevance of perceived independence. To deny that it exists does not make it go away.

The four governing principles:

Mutual or conflicting interests
Audits own work
Functions as management or employee
Acts as an advocate

  1. I think integrity, not subordinating one's judgment to others, should be included. The four principles seem to stress objectivity, forming an unbiased opinion, but does not address when the auditor simply disagrees with the client on matters that affect the audit report. What if all the four principles were not a problem, but just to keep the audit the auditor agrees with the client when indeed the auditor doesn't believe the client is right? That's an integrity problem.

  2. Mutual or conflicting interest should not be limited to economic interests. Admiration and friendship may compel the auditor to identify too closely with management. How do you address this problem? I do not have an answer.

  3. Auditors should not be allowed to lobby for their audit client before Congress, legislators, regulatory agencies or similar bodies because this form of service requires the auditor to become an allied supporter of the client. The auditor cannot be both an ally and a judicial examiner.

2. Indirect and direct financial interests are a problem of the current standards. I agree with the majority of the proposed changes to allow a more realistic approach to judging independence related to direct or indirect financial interests, especially in areas when an office is not directly involved in the audit or a spouse is employed in a non-influential position. I definitely do not think an audit client should be allowed to have any investment in the audit firm.

3. I am disturbed that there has been little to no guidance involving the client hiring the auditor. Given the PharMor and the Lincoln Savings & Loan scandals, among others we don't know about, the real and perceived influence of a job offer, followed by the close association of the audit team with ex-bosses, promotes a situation where an improper influence can easily be exerted on the remaining auditors. I think there should be a cooling off period of time before an auditor is allowed to join an audit client. It would help to break the camaraderie that team members develop on audit engagements. The ex-auditor would be less likely to be viewed as part of the audit team. I am not sure disclosure would prevent a problem, it would be an informative move. I question how the public would use that information.

4. I agree with limiting the type of non-audit services auditors can provide to audit clients. Together with disclosure requirements and audit committee involvement, I think this is an appropriate approach to preventing a potential conflict without total prohibition of such services.

Pamela Roush, Ph.D., CMA