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. Continue reading “All of these things form parts of auditors’ incentives”