How to Choose an Auditor One unfortunate fact about the auditing business is tha

Question

How to Choose an Auditor

One unfortunate fact about the auditing business is that those who depend on the audit — investors, lenders and customers — are not the ones who choose the audit firm. At the places where an audit is most needed, the people choosing the auditor may be the ones who have the most to fear from a good audit.

According to charges filed Thursday against former executives at Dewey & LeBoeuf, Joel Sanders, then the firm’s chief financial officer, sent an email in June 2009 to Frank Canellas, the firm’s finance director, pointing out that the audit partner in charge of Dewey’s audit had left the firm.

“Can you find another clueless partner for next year?” he asked.

“That’s the plan,” replied Mr. Canellas. “Worked perfect this year.”

Mr. Sanders was among the former officials indicted by a grand jury in New York. Mr. Canellas was not indicted, but was charged in a parallel civil action filed by the Securities and Exchange Commission.

The indictment says Mr. Sanders and the other official earlier “discussed new fraudulent entries that could be made to the firm’s accounting records” that would make it appear it was not in violation of loan covenants.

The S.E.C. suit says Dewey officials “expressed occasional concern that the auditor would detect their fraudulent accounting practices, but they took a certain degree of comfort in what they viewed to be the ineptitude of the auditors.”

Ernst & Young was Dewey’s auditor.

This hardly reflects well on Ernst, but there may be one bright spot. Perhaps the audit firm’s management understood the partner’s shortcomings. The S.E.C. suit says the audit partner who left in 2009 had been fired “for reasons unrelated to the audit work.” But his replacement seems to have failed to spot the frauds as well. Ernst gave the firm a clean opinion each year through 2010. It had not certified the 2011 statements before Dewey filed for bankruptcy in 2012.

A spokeswoman for Ernst declined to comment.

Question 1.

Based on your reading, what do you think is the ethical perception the clients have of external auditing professionals? Give reason(s) for your answer.

Explanation / Answer

No Doubt that the majority of the stakeholders in any company depend to a large extent on the Accounting Knowledge, Prudence and Ethical Standards of Auditing Professionals. However , it is also true that a section of the Clients of the Auditors (mainly some unethical management personnel like Joel Sanders & Frank Canellas of Dewey & LeBoeuf ) who want to take the advantage of the Auditing Firm's inability to provide a Capable Audit partner and do the financial fruads and misstatements. So some of the clients have the conception of ineptitude of Auditors and they do all kinds of tricks in accounting to hide the fruads or pass them off as errors when detected.

This is a dangerous mind set in some corporate level. Instead of providing free and fair acees for audit and the erquired support , some employees and management personnel try to hoodwink the auditors, specially if the auditor is inexperienced in the company or new to the company audit assignment.

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