Generous auditing: It’s only wrong if you get caught!
That seems to be the alarming sentiment among certain auditing firms who polled for a recent Vanderbilt University study into accounting practices.
In a corporate world still reeling from a plethora of high-profile accounting scandals, this shocking news may prove difficult to account for.
The study, carried out by Vanderbilt University researchers has found that audit firms are still likely to produce inaccurate audit opinions to benefit a big client - as long as company officials think they can get away with it.
"Our study demonstrates that audit firms may lie to keep a profitable audit client if the expected benefits of keeping the client happy outweigh the expected costs of an audit failure if the firm gets caught," says Debra Jeter, co-author of the study and an associate professor of accounting at the Owen Graduate School of Management at Vanderbilt.
However, the report also suggests that increased scrutiny over the auditing industry, brought about by the accounting scandals of the past two years, may help improve reporting as the possibility grows that wrongdoing will be discovered. Pressure brought by Securities and Exchange Commission enforcement and new rules set by the Public Company Accounting Oversight Board (PCOAB) could influence auditors' decisions.