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ACC 8033 Business Assurance Zeff #2 John T. Rigsby
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1. How did the audit profession change during the 1980s? Uncontrolled expansion of non-attest services Movement away from being known as accountants and auditors by the large CPA firms to being business consultants Hiring of many people outside of accounting and moving them up into positions of authority within the firms
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1. What are some of the reasons (within the profession and the markets) for that change? The low-balling of audit fees to get audit clients so can bill them for consulting work Audit market appeared to be saturated and became a commodity Competitive pressures to get and keep audit clients and to grow and be profitable Viewed as a business, not a profession
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2. What were some concerns express about long-term consequences for the profession? A diminished faith in auditor’s independence and a crisis of confidence in their ability to serve the public interests That if they didn’t limit the scope of services that it would be done for them by an outside agency Reduction in the value of the audit function in the long-run
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3. What were the effects of these changes on the operations of CPA firms during the 1980s? The firms avoided espousal of controversial views on accounting principles Promotion of partners who met these marketing criteria and the retirements or firing of older partners; setting of ‘income targets’ Movement to work with clients as business partners, rather than determining and enforcing what GAAP should be
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3. What were the effects of these changes on the operations of CPA firms during the 1980s? Significant reduction in the audit work and evidence and increase in audit failures and litigation
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3. How did the relationship between the client and the auditor change? Great pressures on CEOs to meet their income targets and auditors to become ‘business advisors’ on how to meet them and seemed to recede into the shadows During the 1990s the Advisory Audit Panel on Auditor’s Independence found that financial managers “aggressively controlled audit activity and costs and are in a position to orchestrate meetings of the external auditor with the audit committee and their full board of directors.”
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4. How did the audit firms and their clients try to affect the establishment of GAAS by FASB? Auditors and clients worked together to get around the GAAP requirements and achieve income target goals and supported their clients in the establishment of GAAP
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4. How did the SEC react? Did the position of the SEC change during the Regan years? The SEC was seemingly less confrontational during the 1980s but continued to balk at the ‘business relationships’ with clients; thought it should be more of a watchdog function
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5. What effect did the passage of the Private Securities Litigation Reform Act of 1995 have on the profession? The act made it much more difficult to secure several as opposed to joint liability; because they felt safer companies got away with much more aggressive accounting in the late 1990s
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