{"id":15207,"date":"2021-01-08T19:24:12","date_gmt":"2021-01-09T01:24:12","guid":{"rendered":"https:\/\/sfwpartnersllc.com\/?p=15207"},"modified":"2021-01-08T19:24:12","modified_gmt":"2021-01-09T01:24:12","slug":"avoiding-conflicts-of-interest-with-auditors-4","status":"publish","type":"post","link":"https:\/\/www.sfw.cpa\/news-and-guides\/avoiding-conflicts-of-interest-with-auditors-4\/","title":{"rendered":"Avoiding Conflicts of Interest With Auditors"},"content":{"rendered":"

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A conflict of interest could impair your auditor\u2019s objectivity and integrity and potentially compromise you company\u2019s financial statements. That\u2019s why it\u2019s important to identify and manage potential conflicts of interest.<\/p>\n

What is a conflict of interest?<\/strong><\/p>\n

According to the America Institute of Certified Public Accountants (AICPA), \u201cA conflict of interest may occur if a member performs a professional service for a client and the member or his or her firm has a relationship with another person, entity, product or service that could, in the member\u2019s professional judgment, be viewed by the client or other appropriate parties as impairing the member\u2019s objectivity.\u201d Companies should be on the lookout for potential conflicts when:<\/p>\n

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Hiring an external auditor,<\/li>\n
Upgrading the level of assurance from a compilation or review to an audit, and<\/li>\n
Using the auditor for a non-audit purposes, such as investment advisory services and human resource consulting.<\/li>\n<\/ul>\n
Determining whether a conflict of interest exists requires an analysis of facts. Some conflicts may be obvious, while others may require in-depth scrutiny.<\/p>\n
For example, if an auditor recommends an accounting software to an audit client and receives a commission from the software provider, a conflict of interest likely exists. Why? While the software may suit the company\u2019s needs, the payment of a commission calls into question the auditor\u2019s motivation in making the recommendation. That\u2019s why the AICPA prohibits an audit firm from accepting commissions from a third party when it involves a company the firm audits.<\/p>\n
Now consider a situation in which a company approaches an audit firm to provide assistance in a legal dispute with another company that\u2019s an existing audit client. Here, given the inside knowledge the audit firm possesses of the company it audits, a conflict of interest likely exists. The audit firm can\u2019t serve both parties to the lawsuit and comply with the AICPA\u2019s ethical and professional standards.<\/p>\n
How can auditors prevent potential conflicts? <\/strong><\/p>\n
AICPA standards require audit firms to be vigilant about avoiding potential conflicts. If a potential conflict is unearthed, audit firms have the following options:<\/p>\n
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Seek guidance from legal counsel or a professional body on the best path forward,<\/li>\n
Disclose the conflict and secure consent from all parties to proceed,<\/li>\n
Segregate responsibilities within the firm to avoid the potential for conflict, and\/or<\/li>\n
Decline or withdraw from the engagement that\u2019s the source of the conflict.<\/li>\n<\/ul>\n
Ask your auditors about the mechanisms the firm has put in place to identify and manage potential conflicts of interest before and during an engagement. For example, partners and staff members are usually required to complete annual compliance-related questionnaires and participate in education programs that cover conflicts of interest. Firms should monitor conflicts regularly, because circumstances may change over time, for example, due to employee turnover or M&A activity.<\/p>\n
For more information<\/strong><\/p>\n
Conflicts of interest are one of the gray areas in auditing. But it\u2019s an issue our firm takes seriously and proactively safeguards against. If you suspect that a conflict exists, contact us to discuss the matter and determine the most appropriate way to handle it.<\/p>\n
\u00a9 2020<\/em><\/p>\n
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A conflict of interest could impair your auditor\u2019s objectivity and integrity and potentially compromise you company\u2019s financial statements. That\u2019s why it\u2019s important to identify and manage potential conflicts of interest. What is a conflict of interest? According to the America Institute of Certified Public Accountants (AICPA), \u201cA conflict of interest may occur if a member […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[13,14,10],"tags":[8,11,12],"class_list":["post-15207","post","type-post","status-publish","format-standard","hentry","category-aa","category-business","category-news","tag-articles","tag-news","tag-updates"],"_links":{"self":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/15207","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/comments?post=15207"}],"version-history":[{"count":0,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/15207\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/media?parent=15207"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/categories?post=15207"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/tags?post=15207"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}