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From the perspective of 1985, critic Robert Chatov, referring to foreign bribes by American businesses, wrote: "The fact remained that outside auditors had failed to uncover the criminal activity rife among many of the largest U.S. corporations. Today, the events under scrutiny . . . have been termed `audit failures' involving major business firms and banks."(n87) In a scathing editorial, Chatov took the American auditor-client structure to task. He summed up his position in testimony before the Dingell Committee as follows:

If one were starting from point zero today to create the most assuredly independent auditing system you could think of, I think it would be judged madness to invent a system where the one to be audited hired the auditor, bargained with the auditor as to the size of the fee, was permitted to purchase other management services from the auditor, and where the auditor in turn had the prime responsibility for setting the rules, and for enforcing them and applying sanctions against themselves. The idea is ridiculous on its face, and yet, that's the system we have in the United states.(n88)

After despairing of any hope of effective self-regulation, Chatov quotes his testimony before the Dingell Committee on what should now be done:

The auditing function should be defined in terms of what it can do, and the process itself ought to be changed so that the auditor is truly independent, which means that auditors ought to be assigned and rotated by the SEC, fees should be standardized, and no other business contacts ought to be permitted between the auditor and the audited so that conflicts of interests simply are structurally eliminated and the relation between auditor and client is no longer suspect.(n89)

In response to the notion that auditors should be rotated more frequently, the accounting profession has replied that effective auditing requires time to learn the client's business, and time is also necessary for establishing the relationship of trust required for securing client cooperation in reporting the whole financial truth.(n90)

The authors believe that the critics of the current auditor-client structure have highly persuasive arguments on their side. However, we doubt that radical structural change is in the cards, given that the well established accounting profession is certain to be implacably opposed. We will have more to say on the structural reform issue in our section on "other limiting principles."(n91)


The potential structural conflict is not unique to the United States, but it is dealt with in a variety of ways in other countries. Four countries were selected for investigation using four major criteria: (1) advanced economic development; (2) a fairly extensive history of the audit function; (3) information availability; and (4) differences from the U.S. structure. The countries selected were the United Kingdom, France, Japan, and Canada. In the structural reform section of this article, we recommend that several of the foreign practices be implemented in the United States.(n92)

United Kingdom


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