Having read Richard Kravitz’s article in the April 2017 CPA Journal (“Serving the Public Interest,” http://bit.ly/2mrlWsk), Sam Gunther’s response in the June 2017 issue (“Independent Auditors Are Not Fiduciaries,” http://bit.ly/2zIqDRB), and the letter William Miller wrote in the October 2017 issue (“Auditors Are Fiduciaries, but in No Way Can We Be Considered Truly Independent”), I am reminded of a quote by George Eliot: “All meanings, we know, depend on the key of interpretation.”
Gunther is addressing the legal term “fiduciary duty” and its legal implications, which are quite serious for the profession. Fiduciary duty is a legal concept established by law, not by any accounting, auditing, or other related professional standard.
Kravitz and Miller are addressing the term in a more amorphous sense, as a general concept. What Gunther says, to my nonlawyer understanding, is completely correct. The law does not recognize that an auditor has a fiduciary duty to the entity being audited. Most recently, the Supreme Court of North Carolina held that as either a matter of law or fact, there was no fiduciary relationship between an auditor and the entity being audited. (CommScope Credit Union v. Butler & Burke, LLP, 2016 N.C. Lexis 812). If there were a fiduciary relationship, I understand that there could be serious legal consequences both as to the burden of proof and the calculation of damages in lawsuits brought against an auditor.
The AICPA on its website also states: “Accountants who provide audit services cannot be held to a fiduciary standard given their duty to the public” (http://bit.ly/2zCFjnS); however, where we all agree is the relevance of the duty to uphold the public interest. As the AICPA also states: “the AICPA Code of Professional Conduct embodies standards of conduct which are closely analogous to a fiduciary relationship—objectivity, integrity, free of conflicts of interest and truthfulness.”
The code and other nonauthoritative literature from the AICPA fully address the issue of auditor independence. If a CPA fails to comply, then he does not deserve to be a member of the profession, and all of the jurisdictions that grant the CPA designation have regulations that substantially or totally incorporate the code into their rules and regulations. Violators may lose their license to practice.
When performing attestation services, there is no fiduciary duty because of the requirement to be independent of the client, but the same due care and recognition of the duty to the public remains regardless of the service being provided. CPAs must exercise due care when providing any professional service and must exhibit professionalism and recognize the trust the public has in the quality of the work attributed to them. Professionalism must always take precedence over commercialism.
I am disappointed in Miller’s letter because it misunderstands Gunther’s point. To paraphrase Miller, there is a “failure to communicate,” or, more appropriately, a failure to understand each other. Kravitz and I have discussed this issue a number of times, but less than precise, nonlegal language is used in his article and responses. Kravitz is approaching it from a conceptual perspective, whereas Gunther is only addressing the legal language ramifications.
Miller proposes a possible solution to the age-old independence issue related to the client’s paying the fee for the audit. He suggests establishing an organization akin to the PCAOB “to dole out audit assignments”; however, from a practical perspective, this suggestion is unrealistic and unworkable. There are tens of millions of private companies and possibly over 6 million entities that need a review or audit to establish and maintain a lending relationship with a bank or receive credit terms from a vendor. Additionally, one must consider who will pay the auditor. At the beginning of the profession, the lender paid for the audit, but that was in the early days of the industrial revolution. Miller’s suggested quasi-governmental organization could not possibly evaluate the difficulty and risk related to the audits or reviews. The suggestion reminds me of the statement by President Ronald Reagan: “The most terrifying words in the English language are: I’m from the government and I’m here to help.”
This area of attestation engagement independence is too important to ignore, and we must continue to discuss ways to improve the auditor’s commitment to upholding the public trust. I invite others to join this discussion and develop suggestions for improving independence compliance and the objectivity and integrity of all practitioners.
The Editor-in-Chief Responds
Vince Love and I have discussed this issue in the past. Love refers to the AICPA statement that “accountants who provide audit services cannot be held to a fiduciary standard given their duty to the public.” My point is that we have an inviolate fiduciary bond with the public and, because of the impact of corporations on global citizens (see below), our obligation extends to all stake-holders both within and outside the corporate enterprise, including shareholders/bondholders, investors, employees, suppliers, communities where employees live, and the community where the company resides. We cannot hide behind the legal definition of fiduciary, since “courts have neither defined the particular circumstances of fiduciary relationships nor set any limitations on circumstances from which such an alliance may arise” (West’s Encyclopedia of American Law, 2nd Ed., Gale Group, 2008).
While the AICPA’s Code of Professional Conduct explains how our responsibility “is closely analogous to a fiduciary relationship,” I argue that today, our responsibility to society and our fiduciary responsibility to its corporate citizens are effectively the same. At the May 2017 Sustainability Investment Leadership Conference, International Integrated Reporting Council founder Mervyn King reported on consulting firm Ocean Tomo’s findings that 55 of the top 100 largest economies of the world are multinational corporations—not sovereign nations—and that the top 2,000 multinational corporations contribute to over 50% of the global GDP. As a result, the corporate society and the global society mirror one another, and CPAs have an even greater responsibility to our global community.
What is nobler to a profession than to serve in a fiduciary capacity by ensuring public trust in the institution as we serve the stakeholders of our global society?