Accounting’s Big Lie — and How to Fix It

Corporations, big accounting firms, and the federal government have been selling the public a lie.

They claim that the financial statements of public companies — including those traded on the stock market — are audited by independent accounting firms.

But the audit firms are not independent.

They are dependent.

The audit firms are chosen and paid by the companies they audit. Just as the company hires its auditor, the company has the power to fire its auditor. The system incentivizes auditors to please their clients instead of protecting the public.

As professor Don Moore of California’s Haas School of Business has put it, “The very notion that the current system allows for truly independent audits is laughably implausible.”

The system incentivizes auditors to please their clients instead of protecting the public.

Source: Accounting’s Big Lie — and How to Fix It