Essay about Conflicts of Interest between Auditors and Clients

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The complete destruction of companies including Arthur Andersen, HealthSouth, and Enron, revealed a significant weakness in the United States audit system. The significant weakness is the failure to deliver true independence between the auditors and their clients. In each of these companies there was deviation from professional rules of conduct resulting from the pressures of clients placed upon their auditors (Goldman, and Barlev 857-859). Over the years, client and auditor relationships were intertwined tightly putting aside the unbiased function of auditors. Auditor careers depended on the success of their client (Kaplan 363-383). Auditors found themselves in situations that put their profession in a questionable time driving them to…show more content…
A conflict of interest exists whether the act is unethical or ethical and can come visible lack of decorum that undermines the confidence in the internal auditor, the audit activity, and the audit profession. (Institute of Internal Auditors) A conflict of interest can impair an individual's ability to do his or her duties and responsibilities objectively. (Institute of Internal Auditors) Moral Seduction Theory (MST) discussed by Andrés Guiral suggests that “auditors are morally compromised by the perceived consequences of their opinions and the root of auditing problems seem to result in an unintentional bias and not in dishonesty” (Guiral, Rogers, Ruiz, and Gonzalo 155-166) The moral-seduction theory explains why professionals are at times unaware of how morally compromised they have become by conflicts of interest (Guiral, Rogers, Ruiz, and Gonzalo 155-166). Arthur Andersen was Enron’s auditor and through Enron’s financial debacle, Arthur Andersen suddenly found them under investigation. The investigation revealed several unusual transactions and fraudulent acts (Giroux 1205-1238). Under pressure by Enron’s executive management team, Arthur Andersen reported to Enron's audit committee material evidence but they would not comment on the illegal acts committed by Enron through financial disclosure
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