Independent External Auditors

Independent External auditors now need to exercise independent judgment when they review the accounts of their clients and attest to the management's assessment to continue to qualify for the registration with the Public Company Accounting Oversight Board. There is also evidence to show that they are beginning to prevail. Instead of browbeating their external auditors or dismissing them in the event of a dispute over material weaknesses or disclosures, managements are learning to be more constructive and disclose their plans to improve their processes or face the prospect of a drastic decline in their share prices.

A recent case of increasing independence of external auditors was revealed in the case of Molex, the Chicago-area electronics maker. The company's auditor, Deloitte & Touche, quit when it's CEO and his chief financial officer refused to disclose an accounting error worth 1% of net income into the audited results and were supported by their board. The firm followed by writing a trenchant account of the incident at the SEC. That sent out a signal to other auditors who would not have worked for Molex again as long as the concerned CEO was involved. The directors had to change their decision and they decided to oust the CEO.

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