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The independence and autonomy of CPA firms was called into question
recently after financial irregularities at Enron Corporation became
public - and the corporation was forced to file for bankruptcy protection.
However, the U.S. economy still needs independent auditors. CPAs play
a vital role by ensuring that most financial statements do not contain
significant irregularities.
If all the facts concerning financial transactions
were properly recorded by the company, and if the owners or managers
of businesses were knowledgeable
and completely trustworthy, there would be little need for independent auditors.
But since most business owners are not trained as accountants, and those
that are rarely keep up with all of the latest accounting rule changes,
and since
a few are dishonest there will always be a need for independent auditors.
Reliable financial information is essential to the following
groups:
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Credit professionals making decisions about credit granting,
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Investors or potential investors considering whether to
invest in the stocks or bonds issued by a corporation
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Bankers considering whether or not to sign off on a loan
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We must recognize that in some cases the goals of the customer [the
provider of information] do not match the goals of the users of the
information. For example, a company trying to get a loan or a line
of credit may try to make its financial statements look as strong as
possible - and this is where the need for independent auditors becomes
obvious - to turn fantasy into reality.
The goal of having audited financial statements independently certified is
to try to ensure the financial information provided is an accurate, complete,
and unbiased representation of the financial condition of the company under
review.
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