1 Independence Standards Board Discussion Memorandum 99-1, Employment with Audit Clients, (March 12, 1999).
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April 8, 1999
TO: ACCOUNTING/TREASURERS COMMITTEE No. 10-99
INDEPENDENT ACCOUNTANTS ADVISORY COMMITTEE No. 3-99
RE: ISB REQUEST FOR COMMENT ON AUDITOR EMPLOYMENT WITH CLIENTS
______________________________________________________________________________
The Independence Standards Board recently issued the attached discussion memorandum,
Employment with Audit Clients.1 The discussion memorandum addresses independence concerns related to
audit firm personnel going to work for audit clients and requests comment on alternative means to
ensure auditor independence in these situations.
The discussion memorandum describes three situations which may give rise to independence
concerns in connection with an independent accountant accepting employment with a former audit
client:
Members of the audit team, who may have been friendly with a former partner or professional
when he or she was with the firm, would be reluctant to challenge the decisions of the
former partner or professional and, as a result, might accept the client's accounting without
exercising appropriate skepticism or objectivity.
In situations where partners or other audit members resign to accept positions with audit clients,
questions may be raised regarding whether the individuals exercised an appropriate level of
skepticism during the audit process prior to their departure.
That the departing partner or professional may be familiar enough with the audit approach and
testing strategy so as to be able to circumvent its design.
The memorandum discusses two alternative means to ensure auditor independence in these
situations. First, the memorandum proposes a "cooling off" period in which partners and other
professionals would be prohibited from accepting employment with audit clients. The cooling off
period may last one or more years and may vary based on the professional's audit responsibilities and his
or her role at the new employer. Alternatively, the memorandum indicates that mitigating controls
already exist, or can be put in place to prevent and detect threats to independence when a partner or
other professional joins an audit client. For example, where a professional accepts employment with an
audit client, his work on the most recently completed audit should be reviewed by a senior person to
assess the impartiality and objectivity of the professional. The memorandum discusses several other
similar controls that may help ensure independence is maintained.
The discussion memorandum requests comment on these and other methods that may be used
to protect auditor independence when a partner or other professional accepts employment with an audit
client. Comments on the discussion memorandum are due to the ISB no later than June 18, 1999.
The Institute is considering whether to comment on the discussion memorandum. If there are
comments that you would like the Institute to make, please contact me by phone (202/326-5851),
fax (202/326-5853) or e-mail (smith@ici.org) no later than June 4.
Gregory M. Smith
Director - Operations/
Compliance & Fund Accounting
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