The Auditor as Standard-setter – some US evidence and its implications

David Alexander, Brigitte Eierle and Christoph Hütten
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David Alexander: Birmingham Business School - University of Birmingham [Birmingham]
Brigitte Eierle: Chair of Financial Accounting & Auditing, - UR - Universität Regensburg
Christoph Hütten: SAP AG [Germany]

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Abstract: This paper provides detailed examples in a US GAAP context of what happens when promulgated rules reach preparers and auditors. We show that auditors are creating their own detailed "sub-rules" which they then impose on their clients. We suggest that such activities may be • Outside any "due process", and therefore failing to fulfill the requirements of institutional legitimacy • Imposing legalistic form over economic substance • Incompatible with supposedly higher order requirements in the US GAAP hierarchy • Inconsistent with the FASB recognition that the responsibility for selecting appropriate accounting policies rests with preparers • Despite all the above, supported by the FASB. We generalize the implications of these arguments in the international harmonization context and suggest that, whilst auditor and preparer application and interpretation of promulgated GAAP at the enterprise level are vital if a fair presentation of the "underlying economics" is to be given, imposed auditor rules may be incompatible with this outcome. The apparent FASB support for, or at least acquiescence in, such rules is problematic. We suggest reasons why the FASB/SEC approach might well be overturned if a case is ever brought before the US courts. The examples of required legalistic minutiae which we discuss are incompatible with the requirements and the philosophy of International Accounting Standards, and obvious concerns arise about the promised convergence process between IASB and FASB requirements.

Keywords: institutional legitimacy; substance over form; auditor GAAP; Légitimité institutionnelle; contenu prévalant sur la forme; auditeur GAAP (search for similar items in EconPapers)
Date: 2008-05
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00522084
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in « LA COMPTABILITE, LE CONTRÔLE ET L'AUDIT ENTRE CHANGEMENT ET STABILITE », May 2008, France. pp.CD Rom

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