Auditor independence

The primary purpose of an audit is to provide company shareholders with an

expert, independent opinion as to whether the annual accounts of the
company reflect a true and fair view of the financial position of the company
and whether they can be relied on. Independence is the main means by which
an auditor demonstrates that he can perform his task in an objective manner.

The Need For Auditor Independence

The auditor should be independent from the client company, so that the audit
opinion will not be influenced by any relationship between them. The auditors
are expected to give an unbiased and honest professional opinion on the
financial statements to the shareholders.

Doubts are sometimes expressed regarding the independence of external

auditors. It can be argued that unless suitable corporate governance measures
are in place, a firm of auditors may reach audit opinions and judgments that are
heavily influenced by the wish to maintain good relations with the a client
company. If this happens, the auditors can no longer be said to be
independent and the shareholders cannot rely on their opinion.

Accounting firms sometimes engage set audit fees at less than the market rate
and make up for the deficit by providing non-audit services, such as
management consultancy and tax advice. As a result, some audit firms have
commercial interests to protect too. This raises concerns that the auditor's
interests to protect shareholders of a company and his commercial interests
may conflict with each other.

A high profile example would be the relationship between Enron and their
auditors, Arthur Andersen. In 2000, Andersen received $27m for non-audit
services, compared with $25m for audit services, meaning Enron accounted for
over 25% of the fees generated by the firm’s Houston office. In the aftermath of
Enron’s demise, the accounting firm was accused of not acting independently
and suggestions were made that they had gone along with the accounting
practices in Enron in order to retain their work.

Threats To Auditor Independence

The audit profession has recognised the following threats to auditor

independence, many of which are linked to the provision of non-audit services:

 Self-interest threat: Where an auditor is financially dependent on the

audit client or where an auditor or someone closely associated with
 him has a financial or other interest in the audit client. The auditor also
depends on the management of the company to secure its re-
appointment as auditor.
 Familiarity threat: The relationship between the auditor and client is
long-standing or otherwise is so familiar that the auditor becomes
involved in advising the client or acting in a management role.
 Self-review threat: A judgment is required of the auditor which
demands that previous work of the firm (whether audit or non-audit)
be challenged or re-evaluated.
 The trust threat: The auditor becomes too trusting of directors and
management, thereby preventing a proper testing of management
information and representations.
 The intimidation threat: The auditor is intimidated by actual or
potential pressures from the client or other party.
 The advocacy threat: The auditor becomes involved in actively
promoting or defending the client’s interests.

Reliance On The Audit

The need for independence arises because in many cases users of financial
statements and other third parties do not have sufficient information or
knowledge to understand what is contained in a company’s annual accounts.
Thus, they rely on the auditor’s independent assessment. Public confidence in
financial markets and the conduct of public interest entities relies partly on the
credibility of the opinions and reports given by auditors in relation with financial
audits.

Conflict of interest

1. A situation that has the potential to undermine the impartiality of a person

because of the possibility of a clash between the person's self-interest and
professional interest or public interest.
2. A situation in which a party's responsibility to a second-party limits its ability to
discharge its responsibility to a third-party.

Read more: http://www.businessdictionary.com/definition/conflict-of-

interest.html
What is a Conflict of Interest?

A conflict of interest is a situation in which an individual has competing interests

or loyalties. A conflict of interest can exist in many different situations. The
easiest way to explain the concept of conflict of interest is by using some
examples.

 with a public official whose personal interests conflict with his/her

professional position.
 with a person who has a position of authority in one organization that
conflicts with his or her interests in another organization

 with a person who has conflicting responsibilities.

Is Conflict of Interest a Crime?

Like other types of illegal or unethical activities, conflict of interest activities carry
the risk of consequences.

In certain circumstances, conflict of interest can result in prosecution. For

example, public officials, like state legislators, are specifically prohibited from
activities that would result in a personal gain because of conflict of interest.

In most cases, though, conflict of interest matters are handled in court by a civil
lawsuit. For example, if a company has proof that a board member profited
from her role on the board, the board member has violated her duty of loyalty
and can be taken to court.

Conflict of Interest
A conflict of interest arises when what is in a person’s best interest is not in the
best interest of another person or organization to which that individual owes
loyalty.
For example, an employee may simultaneously help himself but hurt his
employer by taking a bribe to purchase inferior goods for his company’s use.

A conflict of interest can also exist when a person must answer to two different
individuals or groups whose needs are at odds with each other. In this case,
serving one individual or group will injure the other.

In business and law, having a “fiduciary responsibility” to someone is known as

having a “duty of loyalty.” For example, auditors owe a duty of loyalty to
investors who rely upon the financial reports that the auditors certify. But auditors
are hired and paid directly by the companies whose reports they review. The
duty of loyalty an auditor owes to investors can be at odds with the auditor’s
need to keep the company – its client – happy, as well as with the company’s
desire to look like a safe investment.

So, those of us who wish to be ethical people must consciously avoid situations
where we benefit ourselves by being disloyal to others.

PricewaterhouseCoopers (doing business as PwC) is a multinational professional

services network headquartered in London, United Kingdom. It is the second
largest professional services firm in the world,[5] and is one of the Big Four
auditors, along with Deloitte, EY and KPMG.[6] Vault Accounting 50 has ranked
PwC as the most prestigious accounting firm in the world for seven consecutive
years, as well as the top firm to work for in North America for three consecutive
years.[7]
PwC is a network of firms in 158 countries, 743 locations, with more than 236,000
people.[8] As of 2015, 22% of the workforce worked in Asia, 26% in North America
and Caribbean and 32% in Western Europe. The company's global revenues
were $37.7 billion in FY 2017, of which $16 billion was generated by
its Assurance practice, $9.46 billion by its Tax practice and $12.25 billion by its
Advisory practice.[9] PwC provides services to 422 out of 500 Fortune
500 companies.[4]
The firm was formed in 1998 by a merger between Coopers & Lybrand and Price
Waterhouse.[1] Both firms had histories dating back to the 19th century. The
trading name was shortened to PwC in September 2010 as part of a
rebranding.[10]
As of 2016, PwC is the 5th-largest privately owned company in the United
States.[11]

History[edit]
The firm was created in 1998 when Coopers & Lybrand merged with Price
Waterhouse.[1]
Coopers & Lybrand[edit]
In 1854 William Cooper founded an accountancy practice in London, which
became Cooper Brothers seven years later when his three brothers joined.[1]
In 1898, Robert H. Montgomery, William M. Lybrand, Adam A. Ross Jr. and his
brother T. Edward Ross formed Lybrand, Ross Brothers and Montgomery in the
United States.[1]
In 1957 Cooper Brothers; Lybrand, Ross Bros & Montgomery and a Canadian firm
McDonald, Currie and Co, agreed to adopt the name Coopers & Lybrand in
international practice.[1] In 1973 the three member firms in the UK, US and
Canada changed their names to Coopers & Lybrand.[12] Then in 1980 Coopers &
Lybrand expanded its expertise in insolvency substantially by acquiring Cork
Gully, a leading firm in that field in the UK.[13] In 1990 in certain countries
including the UK, Coopers & Lybrand merged with Deloitte Haskins & Sells to
become Coopers & Lybrand Deloitte:[1] in 1992 they reverted to Coopers &
Lybrand.[14]
Price Waterhouse[edit]

Edwin Waterhousephotographed as a young man

Samuel Lowell Price, an accountant, founded an accountancy practice in

London in 1849.[15] In 1865 Price went into partnership with William Hopkins
Holyland and Edwin Waterhouse. Holyland left shortly afterwards to work alone
in accountancy and the firm was known from 1874 as Price, Waterhouse &
Co.[15] (The comma was dropped from the name much later.) The original
partnership agreement, signed by Price, Holyland and Waterhouse could be
found in Southwark Towers, one of PwC's important legacy offices (now
demolished).[16]
By the late 19th century, Price Waterhouse had gained significant recognition as
an accounting firm. As a result of growing trade between the United Kingdom
and the United States, Price Waterhouse opened an office in New York in
1890,[15] and the American firm itself soon expanded rapidly. The original British
firm opened an office in Liverpool in 1904[15] and then elsewhere in the United
Kingdom and worldwide, each time establishing a separate partnership in each
country: the worldwide practice of PW was therefore a federation of
collaborating firms that had grown organically rather than being the result of an
international merger.[15]
In a further effort to take advantage of economies of scale, PW and Arthur
Andersen discussed a merger in 1989[17] but the negotiations failed mainly
because of conflicts of interest such as Andersen's strong commercial links
with IBM and PW's audit of IBM as well as the radically different cultures of the
two firms. It was said by those involved with the failed merger that at the end of
the discussion, the partners at the table realized they had different views of
business, and the potential merger was scrapped.[18]
1998 to present[edit]
In 1998, Price Waterhouse merged with Coopers & Lybrand to form
PricewaterhouseCoopers (written with a lowercase "w" and a camelcase "C").[19]
After the merger the firm had a large professional consulting branch, as did
other major accountancy firms, generating much of its fees. Management
Consulting Services (MCS) was the fastest growing and often most profitable
area of the practice, though it was cyclical. The major cause for growth in the
1990s was the implementation of complex integrated ERP systems for multi-
national companies. PwC came under increasing pressure to avoid conflicts of
interests by not providing some consulting services, particularly financial systems
design and implementation, to its audit clients. Since it audited a large
proportion of the world's largest companies, this was beginning to limit its
consulting market. These conflicts increased as additional services including
outsourcing of IT and back office operations were developed. For these reasons,
in 2000, Ernst & Young was the first of the Big Four to sell its consulting services,
to Capgemini.[20]
The fallout from the Enron, Worldcom and other financial auditing scandals led
to the passage of the Sarbanes–Oxley Act (2002), severely limiting interaction
between management consulting and auditing (assurance) services. PwC
Consulting began to conduct business under its own name rather than as the
MCS division of PricewaterhouseCoopers. PwC therefore planned to capitalize
on MCS's rapid growth through its sale to Hewlett Packard (for a reported $17
billion) but negotiations broke down in 2000.[21]
In 2000, PwC acquired Canada's largest SAP consulting partner Omnilogic
Systems.[22]
In March 2002 Arthur Andersen, LLP affiliates in Hong Kong and China
completed talks to join PricewaterhouseCoopers, China.[23]
PwC announced in May 2002 that its consulting activities would be spun off as
an independent entity and hired an outside CEO to run the global firm. An
outside consultancy, Wolff Olins, was hired to create a brand image for the new
entity, called "Monday".[24] The firm's CEO, Greg Brenneman described the
unusual name as "a real word, concise, recognizable, global and the right fit for
a company that works hard to deliver results."[25] These plans were soon revised,
however. In October 2002, PwC sold the entire consultancy business to IBM for
approximately $3.5 billion in cash and stock. PwC's consultancy business was
absorbed into IBM Global Business Services, increasing the size and capabilities
of IBM's growing consulting practice.[26]
PwC began rebuilding its consulting practice with acquisitions such as Paragon
Consulting Group and the commercial services business of BearingPoint in
2009.[27] The firm continued this process by acquiring Diamond Management &
Technology Consultants in November 2010[28] and PRTM in August 2011.[29] In
2012 the firm acquired Logan Tod & Co, a digital analytics and optimisation
consultancy,[30] and Ant’s Eye View, a social media strategy development and
consulting firm to build upon PwC's growing Management Consulting customer
impact and customer engagement capabilities.[31]
On October 30, 2013, the firm announced that it would acquire Booz &
Company, including the company's name and its 300 partners, after a
December vote by Booz & Company partners authorized the deal. On April 3,
2014,[32] Booz & Company combined with PwC to form Strategy&.[33][34]
On November 4, 2013, the firm acquired BGT Partners, a 17-year-old digital
consultancy.[35]
After researching the role of digital money for over two years, PwC published a
17-page report called “Money is no object: Understanding the evolving crypto-
currency market,” in August, 2015. The report concluded that cryptocurrency
will replace conventional markets with new technology-driven markets.[36]
In October 2016, PwC and InvestCloud, LLC, the world's largest Digital App
Platform announced that they entered into a non-exclusive joint business
relationship designed to accelerate adoption and implementation of the
InvestCloud Digital App Platform. PwC will be a preferred implementation and
strategy partner of InvestCloud focused on enterprise delivery and innovative
development of new financial app capabilities.[37]
In January 2017, PwC announced a five-year agreement with GE to provide
managed tax services to GE on a global basis, transferring more than 600 of GE's
in-house global tax team to PwC. In addition, PwC will acquire GE’s tax
technologies and provide managed services not only to GE but also to other
PwC clients as well.[38]
In November 2017 PwC accepted bitcoin as payment for advisory services, the
first time the company, or any of the Big Four accounting firms, accepted virtual
currency as payment.[39] The cryptocurrency was accepted by the company’s
Hong Kong office in relation to work from local companies that specialize in
blockchain technology and cryptocurrencies.[40]

Trading PwC
name

Type Members have different

legal structures; both UK
and US firms are
actually limited liability
partnerships

Industry Professional services

Founded 1998
(PricewaterhouseCoopers)
1849
(Price Waterhouse)
1854
 (Coopers & Lybrand)[1]

Headquarters London, United Kingdom[2]

Area served Worldwide

Key people Robert E.

Moritz (Chairman)[3]

Services Assurance
Advisory
Tax Advisory
Strategy Consulting
Data & Analytics
Management Consulting
Financial Advisory
Actuarial
Legal

Revenue US$37.7 billion (2017)[4]

Number of 236,000 (2017)[4]

employees

Website http://www.pwc.com

Deloitte
From Wikipedia, the free encyclopedia
 Deloitte

Type UK private company, limited

by guarantee[1]

Industry Professional services

Founded 1845; 173 years ago

London, England, United
Kingdom

Founder William Welch Deloitte

Headquarters London, UK (legal

domicile)[2]

Area served Worldwide

Key people  David

Cruickshank (ChairmanDelo
itte Global)[3]
 Punit Renjen (CEO Deloitte
Global)[4]

Services  Audit
 Tax
 Management consulting
 Financial advisory
 Risk advisory
 Legal

Revenue US$38.8 billion (2017)[5]

Number of 263,900 (2017)[5]

employees
 Website www2.deloitte.com

Deloitte Touche Tohmatsu Limited /dəˈlɔɪt ˈtuːʃ toʊˈmɑːtsuː/, commonly referred

to as Deloitte, is a UK-incorporated multinationalprofessional services network.[6]
Deloitte is one of the "Big Four" accounting organizations and the
largest professional services network in the world by revenue and number of
professionals.[7] Deloitte provides audit, tax, consulting, enterprise
risk and financial advisory services with more than 263,900 professionals
globally.[8] In FY 2017, the network earned a record $38.8 billion USD in
aggregate revenues.[5] As of 2016, Deloitte is the 6th-largest privately owned
organization in the United States.[9]
As per reports in 2012, Deloitte had the largest number of clients amongst FTSE
250 companies in the UK[10] and in 2015, Deloitte currently has the highest market
share in auditing among the top 500 companies in India.[11][12] Deloitte has been
ranked number one by market share in consulting by Gartner,[13] and for the
fourth consecutive year, Kennedy Consulting Research and Advisory ranks
Deloitte number one in both global consulting and management
consulting based on aggregate revenue.[14]

History[edit]
Early history[edit]
In 1845, William Welch Deloitte opened an office in London. Deloitte was the first
person to be appointed an independent auditor of a public company, namely
the Great Western Railway.[15] He went on to open an office in New York in
1880.[15]
In 1896, Charles Waldo Haskins and Elijah Watt Sells formed Haskins & Sells in New
York.[15] It was later described as "the first major auditing firm to be established in
the country by American rather than British accountants."[16]
In 1898, George Touche established an office in London and then, in 1900,
joined John Ballantine Niven in establishing the firm of Touche Niven in the
Johnston Building at 30 Broad Street in New York.[15]
On 1 March 1933, Colonel Arthur Hazelton Carter, President of the New York
State Society of Certified Public Accountants and managing partner of Haskins
& Sells, testified before the U.S. Senate Committee on Banking and Currency.
Carter helped convince Congress that independent audits should be
mandatory for public companies.[15]
William Welch Deloitte, founder of Deloitte

In 1947, Detroit accountant George Bailey, then president of the American

Institute of Certified Public Accountants, launched his own organization. The
new entity enjoyed such a positive start that in less than a year, the partners
merged with Touche Niven and A. R. Smart to form Touche, Niven, Bailey &
Smart.[15] Headed by Bailey, the organization grew rapidly, in part by creating a
dedicated management consulting function. It also forged closer links with
organizations established by the co-founder of Touche Niven, George Touche:
the Canadian organization Ross and the British organization George A.
Touche.[15] In 1960, the firm was renamed Touche, Ross, Bailey & Smart,
becoming Touche Ross in 1969.[15] In 1968 Nobuzo Tohmatsu formed Tohmatsu
Aoki & Co, a firm based in Japan that was to become part of the Touche Ross
network in 1975.[15] In 1972 Robert Trueblood, Chairman of Touche Ross, led the
committee responsible for recommending the establishment of the Financial
Accounting Standards Board.[15]
In 1952, Deloitte merged his firm (by then known as Deloitte, Plender, Griffiths &
Co.) with Haskins & Sells to form Deloitte Haskins & Sells.[17]
In 1989, Deloitte Haskins & Sells merged with Touche Ross in the USA to form
Deloitte & Touche. The merged firm was led jointly by J. Michael Cook and
Edward A. Kangas. Led by the UK partnership, a smaller number of Deloitte
Haskins & Sells member firms rejected the merger with Touche Ross and shortly
thereafter merged with Coopers & Lybrand to form Coopers & Lybrand Deloitte
(later to merge with Price Waterhouse to become PwC).[18] Some member firms
of Touche Ross also rejected the merger with Deloitte Haskins & Sells and
merged with other firms.[18] In UK, Touche Ross merged with Spicer & Oppenheim
in 1990.[19]
Recent history[edit]
At the time of the US-led mergers to form Deloitte & Touche, the name of the
international firm was a problem, because there was no worldwide exclusive
access to the names "Deloitte" or "Touche Ross" – key member firms such as
Deloitte in the UK and Touche Ross in Australia had not joined the merger. The
name DRT International was therefore chosen, referring to Deloitte, Ross and
Tohmatsu. In 1993, the international firm was renamed Deloitte Touche
Tohmatsu.[15]

Deloitte Office Building in Downtown Chicago

In 1995, the partners of Deloitte & Touche decided to create Deloitte & Touche
Consulting Group (now known as Deloitte Consulting).[20]
In 2000, Deloitte acquired Eclipse to add Internet design-based solutions to its
consulting capabilities. Eclipse was later separated into Deloitte Online and
Deloitte Digital.[21]
In 2002, Arthur Andersen's UK practice, the firm's largest practice outside the US,
agreed to merge with Deloitte's UK practice. Andersen's practices in Spain, the
Netherlands, Portugal, Belgium, Mexico, Brazil and Canada also agreed to
merge with Deloitte.[22][23] The spinoff of Deloitte France's consulting division led
to the creation of Ineum Consulting.[24]
In 2005, Deloitte acquired Beijing Pan-China CPA to become the largest
accountancy firm in China. Just prior to this acquisition Deloitte China had
about 3,200 employees. This acquisition was part of a five-year plan to invest
$150 million in China. Deloitte has had a presence in China since 1917.[25]
In 2007, Deloitte began hiring former employees of the Central Intelligence
Agency (CIA) for their competitive intelligence unit known as Deloitte
Intelligence.[26]
In 2009, Deloitte purchased the North American public service practice
of BearingPoint (formerly KPMG Consulting) for $350 million after it filed for
bankruptcy protection. [27]
Deloitte LLP took over the UK property consultants Drivers Jonas in January 2010.
As of 2013, this business unit was known as Deloitte Real Estate.[28]
In 2011, Deloitte acquired DOMANI Sustainability Consulting and ClearCarbon
Consulting in order to expand its sustainability service offerings.[29]
In January 2012, Deloitte announced the acquisition of Übermind, a mobile
advertising agency.[30] The acquisition marked Deloitte's first entrance into the
mobile application field.[31]
In November 2012, Deloitte acquired Recombinant Data Corporation, a
company specializing in data warehousing and clinical intelligence solutions,
and launched Recombinant by Deloitte.[32] In February 2013 Recombinant by
Deloitte merged with an internal informatics unit (Deloitte Health Informatics)
and launched ConvergeHEALTH by Deloitte.[33]
On 11 January 2013, Deloitte acquired substantially all of the business of Monitor
Group,[34] the strategy consulting firm founded by Harvard Business
School professor Michael Porter, after Monitor filed for bankruptcy protection.[35]
In 2014 the company introduced Rubix, a blockchain consultancy providing
advisory services for clients in different business sectors, including government. In
2016 the company created its first blockchain lab in Dublin. A second hub was
launched in New York in January 2017. In 2016, Deloitte Canada set-up a Bitcoin
automatic teller machine and equipped a restaurant in its office complex to
accept bitcoin as payment. Deloitte CIS partnered with Waves Platform to
offering services related to initial coin offerings. Deloitte became a member of
the Ethereum Enterprise Alliance and the Hyperledger Project sponsored by
the Linux Foundation in May 2017.[36][37]
In 2016, Deloitte acquired advertising agency Heat of San Francisco, best known
for its work Madden NFL from EA Sports and the Hotwire travel website. Heat was
the 11th digital marketing agency purchased by Deloitte Digital since its
founding in 2012. As of 2016, Deloitte Digital had 7,000 employees. It billed $2.1
billion in 2015, making it one of world's largest digital agencies.[38][39]
In September 2016, Apple Inc. announced a partnership with Deloitte aimed at
boosting sales of its phones and other mobile devices to businesses. As part of
the partnership, the two companies will launch a service called Enterprise Next,
in which more than 5,000 Deloitte consultants will advise clients on how to make
better use of Apple products and services.[40][41][42]
In October 2016, Deloitte announced that they were creating Deloitte North
West Europe. The Belgian, Danish, Dutch, Finnish, Icelandic, Norwegian, and
Swedish member firms will combine with the UK and Swiss member firms to
create Deloitte North West Europe. Deloitte, over the next three years, will invest
€200m to enhance its services to its global, national and private market clients
and to create the best development opportunities. The firm will come into effect
on 1 June 2017 and it is estimated to have 28,000 partners and people
generating over €5bn in annual revenue. Deloitte North West Europe will
account for approximately 20% of all revenue within their Global Network. [43]