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CPA Independence and Audit Committees

Do you feel that it is naive to believe that all CPAs can maintain independence in both appearance and fact? Over time, CPAs will develop relationships with their clients and certainly the CPAs are dependent on the fees derived from the clients. In 2002, Sarbanes-Oxley made the audit committee directly responsible for the hiring of the audit firm. The SEC and the stock exchanges have issued recent rules and requirements for audit committees to improve independence and financial reporting. What do you feel the audit committee's role is in maintaining independence? Do you feel this role is effective?

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It is naive to believe that an auditor can maintain independence while building a professional relationship with the client company after a certain length of time. That's why Section 203 Subsection J of the Sarbanes-Oxley Act requires that the lead audit partner for the client company be rotated every five years and non-lead auditors to rotate every two years. Basically, this prevents (or works to prevent, at best), an auditor, and in particular, a lead auditor from losing their independence.

The PCAOB saw this ...

Solution Summary

This solution discusses CPA independence in relation to the audit committee and related principles.