I, too, believe lack of independence is the primary problem in the auditing process. Our leaders have for decades foisted on the American public the folly that we are independent because we say we are. The SEC and the rest of government have bought into that notion. No auditor can possibly be independent when the auditee hires and fires the auditor. The fact that the client pays the auditor isn’t the problem; the core problem is the hiring and firing.
The conflict would be eliminated if the SEC instituted a lottery to pick auditors and, after the first one was held, rotated 20% of audits each year, getting every publicly held company on a five-year rotation, or rotated one-third of audits each year, putting companies on a three-year-rotation schedule. Price bidding should never be part of the equation. Qualifications bidding should be required to get into the audit lottery pool in the first place. For example, a firm that lacks the adequate staffing, experience and specialized education to audit WorldCom would not be allowed in the lottery for that audit. Also, failure to detect the incorrect capitalization of several billion dollars of expenses should be a clear sign the auditor isn’t qualified.
William E. Owens, CPA