All of these things form parts of auditors’ incentives

18 Jun All of these things form parts of auditors’ incentives

As I said, the integrity of financial reporting ultimately depends on auditors’ incentives, and auditors’ incentives originate from a lot of different sources — the reputation they have in the marketplace and competitive pressures from other audit firms, regulation and professional discipline and not the least of which is civil litigation and criminal laws.

Really, the thing that I’d like to put out here is that incentives are really a joint product, if I can talk in the words of an accountant. They’re really the joint product of all the forces that come together.

I really think it’s, in a logical sense, impossible to isolate one feature and call it independence. We try to label it. We try to go for it, but inevitably what happens is our rhetoric getsvery contextualized, and usually we end up with a lot of, sort of, thou shalt nots.

So the fact, I think, that auditors’ incentives are a joint product of a lot of different forces results a lot of times, I think — gets lost in our dialogue about auditor independence, and then we can start, sort of, moralizing about what independence might be.

In my own mind, I think it should be undertaken by some serious economatricions and studiers of industrial organization along with some people that know the accounting profession

Also, I think we get tempted to substitute concerns for evidence because we have hard time really isolating in on the issue that we’re talking about.

Well, I have two real requests, since, I don’t know, whoever taught me to speak said you shouldn’t speak unless you have some agenda, and I definitely have one.

I really believe that there should be a thorough, systematic attempt to estimate the magnitudes of the economies of scope between audit and non-audit services before serious restrictions on the scope of services are imposed.

I’m very concerned that serious restrictions on the scope of services, that the effect of that would mainly be on the https://loansolution.com/payday-loans-ia/ firms’ ability to innovate new types of services and grow those services to a certain point.

My own intuition is that once they get so — you know, once the services get so large and off and rolling and there’s a market for them that it’s not really that importantto have them tied back to auditing. That’s my intuition.

But what I would believe to be the case would be that when firms are offering new services the first clients they probably have are their audit clients. That’s just my intuition. I’d like to know if that’s true and would like to know something about the dynamics of the growth of those services.

I think we, sort of, have some vague notions that we know what constitutes good incentives

Again, the effect of banning audit firms from having certain types of non-audit services for their audit clients might be to inhibit their ability to innovate types of services and grow them in a way that makes our economy more efficient.

So I’d really like some thorough, systematic attempt to estimate the magnitude of these economies of scope. I think that that actually could be done.

I think it’s going to be a study that’s going to be pretty extensive and would have to get somebody’s hands dirty because you have to really get down and understand exactly what services are being offered, where does it overlap with auditing, where does it not. I have some confidence that some of my colleagues in economics could perform that study.

I’d also request that whatever rules are adoptedthat they balance the economies of scope against whatever potential financial reporting costs there might be perceived to be; that is, a view towards the overall efficiency of what these firms provide.