Step Away From The Auditor

Thinking of getting to know your "independent" auditor better? Don't push it, says the SEC.

Auditors are fiscal watchdogs for businesses-but sometimes, says the federal government, auditors appear a little too cozy with those they're trained to scrutinize. As a result, the Securities and Exchange Commission (SEC) recently made some changes to make sure auditors remain independent. If you use an auditor to certify your financial statements, don't ignore the SEC's new rules, which place restrictions on the type of services auditors can perform for publicly traded companies. The changes, which became effective in February, will affect an estimated 2,200 small companies.

SEC chairman Arthur Levitt, a leader in the campaign to revise the rules, argued that auditors can't be independent watchdogs if they're business advisors to the companies they audit. For many large accounting firms, auditing services now provide a smaller portion of their revenues, while consulting services have grown steadily.

Levitt says the changes were also needed to protect investors. In a speech before the American Institute of Certified Public Accountants (AICPA), the industry's trade association, he pointed out that auditors may be tempted to go easy on their clients when it comes to judgment calls and look the other way when businesses use accounting tricks to save on taxes.

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This article was originally published in the May 2001 print edition of Entrepreneur with the headline: Step Away From The Auditor.

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