Auditor Independence

In the past, the integrity of external auditors was routinely compromised by conflicts of interests caused by related business dealings in consulting. Sarbanes Oxley and associated operative rules from the Securities Exchange Commission have created a new environment of greater independence of auditors and focused their attention on improving the quality of information that is shared with shareholders. External auditing companies are now banned from offering not only consulting services but also services such as accounting information systems, appraisal and valuation services, bookkeeping services related to record keeping and financial reporting, actuarial services, internal audit outsourcing services, management functions or expert services, recruitment services, investment banking services and legal services.

Both the Sarbanes Oxley Act and SEC require external auditors to report to the audit committee and report on the critical accounting policies that have been used, the alternative accounting treatments with a discussion on the impact of using each of them and material communications between auditors and managements. The Public Company Accounting Oversight Board, with enhanced authority, is also now responsible for oversight over the profession as a whole.

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