Auditor Independence: The Performance Of Consulting Engagements With Audit Clients

Abstract

As the size and complexity of client information system needs have risen, CPA firms have found it necessary to co-contract with non-CPA firms as a means of efficiently providing services to clients. The increase in frequency of these engagements has raised concerns regarding the propriety of co-contracting with an audit client. The Securities and Exchange Commission has taken the position that co-contracting with audit clients is unacceptable because it impairs audit independence. Through a series of petitions, the Big Eight (now the Big Six) CPA firms have proposed certain safeguards in an effort to satisfy the SECs concerns. The purpose of this article is to (1) discuss independence issues related to CPA firms co-contracting with audit clients, (2) consider arguments both for and against the SEC stance which prohibits contracting between CPA firms and their audit clients, an d(3) consider possible regulatory responses from the SEC.