Is PCAOB Standard No. 5 Impairing Auditor Objectivity?

Auditing Standard No. 5 (AS5) urges external auditors to rely on the work of internal auditors when auditing internal controls over financial reporting. Although relying on the work of internal auditors may enhance audit efficiency, this paper examines whether such reliance is achieved at the expens...

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Bibliographic Details
Published in:Current issues in auditing 2015-12, Vol.9 (2), p.C1-C7
Main Authors: Brody, Richard G., Haynes, Christine M., White, Craig G.
Format: Article
Language:English
Subjects:
Auditing standards
Conflicts of interest
Financial reporting
Internal auditing control
Internal auditors
Objectivity
Public Company Accounting Reform & Investor Protection Act 2002-US
Studies
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Summary:Auditing Standard No. 5 (AS5) urges external auditors to rely on the work of internal auditors when auditing internal controls over financial reporting. Although relying on the work of internal auditors may enhance audit efficiency, this paper examines whether such reliance is achieved at the expense of audit effectiveness. Specifically, this commentary questions whether conformity with AS5 is advisable given that changes in auditor/client relationships may have impacted internal and external auditor objectivity. Research has demonstrated that since the implementation of the Sarbanes-Oxley Act of 2002 external auditor objectivity has improved, ostensibly due to a reduced conflict of interest between external auditors and their clients. Although this result has positive implications for relying on the work of internal auditors, research also shows that internal auditors' objectivity has not improved over time. Thus, in complying with AS5, external auditors may be incorporating internal auditors' biases into their own judgments. The impact and implications of this problem are discussed.
ISSN:1936-1270
1936-1270
DOI:10.2308/ciia-51144