Case 2: Kpmg: How Many Firms?

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Professional standards do not allow for a company’s auditors to also provide tax services and still retain their independence. The SEC and the PCAOB have put restrictions on the nonaudit services that a company’s auditors can provide. These restrictions really limit the company’s auditors to the extent that if a firm provides auditing services for a company they cannot really provide any other types of services. This limitation was put into place in order to maintain the independence of auditors and the companies that they audit. If an accounting firm was allowed to provide auditing services as well as tax services to a company, the independence, in such a case, of the firm would not be maintained because the firm would be in part auditing some of its own work. The provisions of the Sarbanes-Oxley Act have limited a public company’s choice of auditors by placing a strong emphasis on maintaining independence between the auditor and the client. Before the Sarbanes-Oxley Act, accounting firms could provide auditing services as well as other services including consulting services to companies and still, in the eyes of the law, maintain independence. After some big scandals came out in the early 2000’s, including the Enron scandal, there was a strong push for more restrictions on the nonaudit services that auditors could provide to clients. The Sarbanes-Oxley Act put into place restrictions on these services and created the PCAOB which provided oversight on auditing services and has the job of making sure that independence is maintained in all cases. This is a change from the past where it was the auditors responsibility to make sure that independence is maintained between themselves and the client. There are some advantages to allowing auditors to provide nonaudit services to their audit clients. One advantage would be that it makes it easier for the client to acquire multiple services from one accounting firm instead of having many different services provided by...
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