Independent Auditors Are Not Fudiciaries

In “Serving the Public Interest—Promoting Better Government Reporting and Sustainable Corporate Governance” (April 2017), Editor-in-Chief Richard Kravitz states, “I would argue that [external] auditors have an even more critical fiduciary responsibility than ever before.” He implies that independent auditors presently have “fiduciary responsibilities” arising from their auditing services. This assertion is incorrect.

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CPA firms that audit and report on financial statements in the United States undertake contractual obligations to audited client entities and may incur non-fiduciary obligations to third parties flowing from those audit engagements. Traditional fiduciaries have duties to act in representative capacities for the benefits of others in dealing with property of those others. Independent auditors cannot be fiduciaries, as independence causes an auditor to assume a responsibility that transcends any employment relationship with the client. Legal decisions support this conclusion.

Kravitz’s position presents independent auditors as fiduciaries to certain parties and asserts that fiduciary obligations should be extended to other third-party “stakeholders of the modern corporation,” including “employees; customers; suppliers; vendors; communities where employees live; local governments that provide health, education, and safety resources and depend upon employees’ taxes; as well as shareholders and bondholders.” He includes financial managers and outside advisors as others who are and should be fiduciaries. If adopted, the thinking behind this position would not transform “financial capitalism” to “sustainable capitalism.” It would help wreck U.S. capitalism, which is premised on investors seeking only to maximize returns and maximize market values on their investments.

This European view is similar to that articulated by the International Integrated Reporting Council (IIRC), an arm of the European Sustainability Movement. This movement was hatched in Europe—perhaps near the left coast of Sweden—and was promoted through a study initiated by Prince Charles of England, who is not recognized by many as an economic expert. Embraced by European socialists who reject U.S. capitalism, the IIRC and its ilk promote the “shared values” of the European Union. Those shared values feature EU member countries that can barely sustain their present aging levels of population, historical economic growth rates that lag behind ours, and unemployment rates that regularly and “materially” exceed ours, while reaping the benefits of a protective shield for which we overwhelmingly foot the bills.

Samuel P. Gunther, CPA. New York, N.Y.