You and a colleague are carrying on a heated discussion.

You and a colleague are carrying on a heated discussion. The colleague makes a number of statements about the public accounting profession that you believe are in error. Welcoming an opportunity for rebuttal, you are ready to reply.

a. For each of the following colleague statements, develop a brief response indicating erroneous assumptions made by the colleague or your agreement with the statements.
b. Cite relevant evidence in support of your response.
Colleague's Statements
1. "Auditing neither creates goods nor adds utility to existing goods and therefore does not add value to business. Auditing exists only because it has been legally mandated."
2. "The failure of the public accounting profession to warn us of the problems that existed in the economy is an example of a profession not adding utility to society."
3. "The only reason I would hire an auditor is with the expectation that the auditor search for and find any fraud that might exist within my company. Searching for fraud should be the primary focus of an audit."
4. "Auditors cannot legitimately serve the 'user' public because they are hired and fired by the management of the company being audited. If management does not like the opinion given by an auditor, it can simply hire another auditing firm that would be more amenable to the arguments made by management."
5. "The switch to the PCAOB in setting audit standards will enhance the reputation of the profession because they must act in the public's interest."
6. "Auditors cannot add significant value to financial statements as long as GAAP allow such diversity in accounting principles. How, for example, can the same auditor issue unqualified opinions on identical companies-one that uses FIFO and the other LIFO to account for the same set of transactions-recognizing that the reported income and balance sheets will be materially different? How can both be fairly presented?"
7. "Auditing is narrow-just nitpicking and challenging the organization in an attempt to find mistakes. I would rather pursue a career where I really understand a company's business and would be in a position to make recommendations that would improve it."
8. "Auditing would add greater value if it analyzed company performance and presented a report on company performance along with the audited financial statements."
"If auditors make recommendations to clients based on weaknesses in the company operations, the auditors ought to make those recommendations public. This would help increase the public trust by providing more accountability by both management and auditors."
10. "Adding reports on the quality of internal control will enhance the value of the audit function to society."
11. "The auditor's report admits that transactions are evaluated only on a 'test' basis; thus, the results embodied within an auditor's report must be treated with a great deal of skepticism."

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
Generally Accepted Accounting Principles (GAAP) is the accounting standard adopted by the U.S. Securities and Exchange Commission (SEC). While the SEC previously stated that it intends to move from U.S. GAAP to the International Financial Reporting Standards (IFRS), the...


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