Addressing the auditor independence puzzle: Regulatory models and proposal for reform

• Main Authors: Aurelio GURREA-MARTINEZ, GELTER, Martin
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2019
• Subjects: Business Organizations Law
• Online Access: https://ink.library.smu.edu.sg/sol_research/3707; https://ink.library.smu.edu.sg/context/sol_research/article/5665/viewcontent/addressing.pdf
• Institution: Singapore Management University

Auditors play a major role in corporate governance and capital markets. They facilitate firms’ access to financing by creating trust among public investors with efforts to prevent misbehavior and financial fraud by corporate insiders. In order to fulfill these goals, however, in addition to having the adequate knowledge and expertise, auditors should perform their functions in an independent manner. Unfortunately, auditors are subject to conflicts of interest by, for example, providing non-audit services or the mere fact of being hired and paid by the audited company. Therefore, even if auditors act independently, investors have reason to think otherwise. This lack of trust can undermine a firm’s access to financing and the development of capital markets.