Integrity, Auditor Independence, and the Protection of Investors

Abstract

A basic principle underlying the public securities markets in many countries is that the interests of investors need to be protected. Independence from their clients (i.e., client management) is supposed to make it more likely that auditors will protect investors’ interests. This paper examines the question whether acting in accordance with professional rules governing accounting and auditing is sufficient to provide such assurance. In addition to a set of rules, it is argued that investor protection requires that auditors possess, or act with, integrity. An analysis of the principle of acting with integrity, as contained in the AICPA Code of Professional Conduct, shows that its formulation of the principle conflicts with the concept itself, and thus that the profession's commitment to integrity is questionable. Five recent and prominent cases are examined, which show that the required integrity may be lacking. The implications of a lack of integrity are discussed at the end.

Citation

Gaa, J.C. (2006), "Integrity, Auditor Independence, and the Protection of Investors", Lehman, C.R. (Ed.) Independent Accounts (Advances in Public Interest Accounting, Vol. 12), Emerald Group Publishing Limited, Leeds, pp. 27-47. https://doi.org/10.1016/S1041-7060(06)12003-9