In a 1988 article, Arthur Wyatt, a former member of the FASB, stated:
Practicing professionals should place the public interest above the interests of clients, particularly when participating in a process designed to develop standards expected to achieve fair presentation. Granted that the increasingly detailed nature of FASB standards encourages efforts to find loopholes, a professional ought to strive to apply standards in a manner that will best achieve the objectives sought by the standards. Unfortunately, the auditor today is often a participant in aggressively seeking loopholes. The public, on the other hand, views auditors as their protection against aggressive standard application.
a. What does it mean to find "loopholes" in FASB pronouncements? How would
finding loopholes be potentially valued by the management of a client?
b. Explain how auditors could be participants in "aggressively seeking loopholes"
when the independence standard requires the pursuit of fairness in financial
c. How is professionalism related to the concept of fairness in financial reporting?
Do you suppose that Arthur Wyatt foresaw the coming of the spectacular criminal activities of companies and their management including WorldCom, Enron, and Tyco? Yes, he may have. Sarbanes-Oxley was a huge step in an attempt to minimize the finding and using of loopholes through more stringent rules for reporting.
a. The company and it auditors should not have an adversarial relationship but it can develop when it comes to disagreements about reporting issues. The 'loopholes' refer to trying to strike a compromise position between what the auditor believes ...
The 350 word solution includes a paragraph in response to each question. Each answer identifies the responsibilities as they apply to the client and to the auditor.