Ameliorating Conflicts of Interest in Auditing: Effects of Recent Reforms on Auditors and their Clients

Abstract

Moore, Tetlock, Tanlu and Bazerman (MTTB) write that moral-seduction theory predicts that auditor decisions are affected by economic and social pressures in ways that affect audit quality, and that issue-cycle theory predicts that efforts to reform the audit industry will be undermined by special interests. MTTB therefore conclude that recent reform efforts are misguided and insufficient, because the reforms do not resolve underlying conflicts of interest. I agree with MTTB's basic premise that economic and social incentives affect behavior, but I do not agree with their characterization of many recent reforms. MTTB misstate some reforms, and do not consider sufficiently how reforms reduce the likelihood of audit failure by affecting the actions of audit clients as well as auditors. I conclude that the evidence does not clearly indicate need for further reform, and that further research is necessary to understand the effects (both intended and unintended) of recent reforms.