Is Auditor Independence Worth It?

Lora Bentley

Researchers from Texas A&M and Brigham Young Universities have determined that Sarbanes-Oxley's auditor independence requirements may have increased companies' accounting risk.


According to Douglas Prawitt, an accounting professor at Brigham Young University, David Wood, a visiting instructor at Brigham Young, and Nathan Sharp, assistant accounting professor at Texas A&M University, looked at 166 public companies between 2000 and 2002, right before Sarbanes-Oxley was enacted. They found that those who performed a company's internal audits had knowledge of the company that helped them to report external audits more accurately.


But the Institute of Internal Auditors cautions that internal auditors should be working in house, and doing more with a company than testing controls and validating results. "They're also looking at operational risks, compliance risks, business and strategic risks," says IIA President Richard Chambers.

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