From the course: Accounting Foundations: Internal Controls
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Are external auditors really independent?
From the course: Accounting Foundations: Internal Controls
Are external auditors really independent?
- Are external auditors independent? External auditors are hired by the audit committee of the board of directors to make sure that the financial statements prepared by management fairly represent the financial performance of the company, but because the company being audited is paying the auditors, is there a danger that the auditors may not be independent? Is there a possibility that auditors will go along with whatever management says because management is paying them? Well, that possibility exists, but there are a number of factors that are at work as a counterbalance. In short, those factors are regulation, fear of punishment, and the value of a reputation for honesty. First, the Sarbanes-Oxley Act requires companies to maintain an adequate system of internal controls. If persons in management knowingly violate this law, they can go to jail. And a number of top managers have, and they're also subject to personal…
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