THE IMPOSSIBILITY OF AUDITOR INDEPENDENCE

The growing number of audit failures leads the authors to question the current auditing relationship. In no profession is impartiality more important than in auditing, they say. Yet psychological research indic ates that such impartiality is impossible under current institutional arrangements. An audit is meant to ensure that a company's financial s tatement is valid, reliable, and complete. The auditor gives an unqual ified opinion that the statement ''fairly presents'' the company's fin ancial position. But the management of the company hires and pays the outside auditor; the company and its managers become the auditor's ''c lient,'' thus making psychological independence impossible. Bazerman e t al. examine a series of experiments on self-serving bias, in which b ias entered unconsciously and unintentionally while subjects made supp osedly impartial judgments. In the auditing relationship, certain char acteristics exacerbate self-serving bias, causing auditors' judgments to favor their clients: 1. People tend to be less concerned about harm ing a statistical victim than a known victim. An auditor doesn't reall y know who will be harmed by misinformation, but he or she does know t he people in the firm who would be harmed by a negative audit. 2. The negative consequences of a negative opinion on an audit are immediate, i.e., loss of contract or employment. 3. Auditors have long-standing relationships with the companies they audit. 4. Reporting standards ar e flexible or ambiguous. 5. People can mislead themselves about the na ture of trade-offs and rationalize their behavior. Other factors add t o the pressure on auditors such as the increased competition among acc ounting firms and the growth of consulting firms that also provide aud iting services. An unfavorable audit risks not only the auditing relat ionship but the consulting one as well. Bazerman et al. call for refor m of auditing's current structure to end the current epidemic of litig ation.