Ocean wants Barnes and Fischer to aid in developing and improving its IT system. What are the advantages and disadvantages of having the same CPA firm provide both auditing and consulting services? Given current auditor independence rules, will Barnes and Fischer be able to help Ocean with its IT system and still provide a financial statement audit? Support your conclusion with appropriate
citations to authoritative standards if your instructor indicates that you should do so.
What will be an ideal response?
The issue of providing both systems consulting and auditing services to the same client has been a topic
of considerable debate in the profession. Some parties argue that providing both consulting and auditing
services to the same client may impair auditor objectivity. On the other hand, many in the profession
argue that a great deal of efficiency is gained by the same firm providing both kinds of services because
the firm can leverage the auditor’s deep understanding of the client and its information system in
providing additional services. For public companies, which are subject to the Sarbanes-Oxley Act of
2002, the auditor is not permitted to provide certain types of consulting services for clients. Financial
information systems design and implementation is not an approved consulting service under Sarbanes-
Oxley. Until it executes its planned initial public offering, Ocean is a privately-held company and is thus
subject to AICPA independence requirements. The AICPA Code of Professional Conduct indicates that
systems implementation is an acceptable nonattest service to provide to audit clients under certain
conditions. For example, while a CPA firm may assist an audit client in implementing a computer
software package, it may not “design” the financial information system by creating or changing the
computer source code underlying the system. Students typically have strong views on this issue. Some
argue that objectivity would likely be impaired, and others argue that the objectivity issue can be dealt
with and that the efficiencies gained outweigh the potential costs.
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