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The “Big Four” and “Sai”– A Case Study on the Management of

Financial Audit Independence

Article · January 2014

DOI: 10.15640/ijat.v2n3a5

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 International Journal of Accounting and Taxation
September 2014, Vol. 2, No. 3, pp. 79-97
ISSN: 2372-4978 (Print), 2372-4986 (Online)
Copyright © The Author(s). 2014. All Rights Reserved.
Published by American Research Institute for Policy Development
DOI: 10.15640/ijat.v2n3a5
URL: http://dx.doi.org/10.15640/ijat.v2n3a5

The “Big Four” and “Sai”– A Case Study on the Management of Financial
Audit Independence

Ioan Gheorghe Tara1

Abstract

The process of financial auditing and the auditors themselves must be independent
and perceived as such. We analysed a sample of the companies that received
financial auditing by the Big Four auditing firms in Romania and that parallel a
sample of Romanian Court of Accounts audited companies. The conclusion
suggests a difference in the audit opinion of these two groups, which might be the
result of direct payment for contracted services or of the lack of such a connection.
The lack of any moneyed connection between the auditor and the audited would
improve financial audit independence.

Introduction

As Stanford University economist Paul Romer has perceptively warned, “A

crisis is a terrible thing to waste”. Fortunately, Romer’s observation produced some
effects, particularly in regard to debates concerning the causes of the global financial
crisis, either in the field of research or in financial and economic practices. Financial
auditing has benefited from that challenge.

The actual economic and financial crisis undoubtedly had numerous causes.
The crisis began in the banking and insurance system and spread to companies in
different fields. Questions remain regarding how the crisis was possible, whether
anyone is guilty, what the causes were and what is to be done so that the effects of the
crisis will not be extensive and damaging.

1Economic Sciences Faculty, University of Oradea , 1-2, Universitatii Street, Oradea, Romania.
Tel: +40741228229, Email: Mail: ioantara@yahoo.com
80 International Journal of Accounting and Taxation, Vol. 2(3), September 2014

Political leaders and representatives from economic and financial

organisations have widely discussed possible options for stopping the course of the
crisis. Among these considerations, the officials suggested that money from the state
might be a good option, but they did not take in account that this solution would
affect people’s financial comfort. As a result of such a measure, changes in the
ideological beliefs of some public opinion-makers could even be noticed, and worse,
people’s confidence in the financial system has been dramatically affected. Concerning
the bankruptcy of certain banks and large private companies, there have been fewer
debates and correspondingly insufficient ideas about the causes. Therefore, we
suggest that honest debates on the crisis’ actual causes and contributions should come
from professional organisations rather than from the political world. In this manner,
confidence in the financial world would be restored.

Could financial audit, in its organisation and exercising, be one of the causes
of the crisis? Audit has been viewed as a lever to increase the credibility of financial
information, and its independence both in reality and in perception appears to be
critical.

In our opinion, weaknesses in financial audit independence did not determine

or at least were not the primary cause of bankruptcy in certain companies and banks.
However, financial auditing might have better prevented the negative course of some
companies’ financial situations if professional audit standards were more effectively
applied. In some respects, the economic and financial world required additional
transparency in revealing basic financial information and needed more efficient
organisation of the systems known as the “internal control system” and the “risk
management system”. Proposals have been made to improve the methods of
enforcing the standards of financial auditing.

The International Federation of Accountants (IFAC) issued the International

Standards of Audit (ISA) that financial auditors refer to in their activity. Other rules
and standards2 also have been issued regarding accounting activity and reporting
systems. In addition, recommendations have been issued to all economic and financial
organisations, including the majority of countries, regarding how to improve their
accounting activity and what to do to enhance transparency.

2 http://www.ifac.org/About/Publications.php
Ioan Gheorghe Tara 81

To assist professional accountants in addressing the issues related to the

global financial crisis, IFAC and the International Auditing and Assurance Standards
Board (IAASB) have focused on the following three activities:

- To increase awareness among the preparers and auditors of existing and newly
developed guidance that can assist these officials in reporting on financial
instruments;
- To encourage further convergence in reporting standards on financial instruments
while at the same time strongly supporting (the continuation of) fair value
accounting because reducing transparency is not in the interests of investors; and
- To participate in and promote discussions regarding best practices with respect to
the audits of financial institutions and other organisations that are affected by the
current crisis3.

As a professional organisation, IFAC recently submitted recommendations

regarding the reform of the global financial system to the G20 working groups that
met during the 2009 London Summit, a subject that we will cover in another paper.

After the crisis began in 2010, the European Commission, one of the main
regulators, issued a so-called green paper4 that aimed to strengthen the rules of
accounting and specifically to improve the independence of financial auditing.
Included in the green paper were provisions that referred to eliminating the money
between the auditors and the audited by creating a special regulator to independently
nominate the auditor and to introduce the principle of rotation in assigning the
auditors. The IFAC did not fully agree with these proposals.5

Researchers demonstrated that there are connections between the type of

audit report and the auditors’ awareness or even unconscious interests or factors
(Chan & Kogan, 2012; Constantinides, 2002; Geiger & Raghunandan, 2002; Moore et
al., 2003; Rosman, 2011; Tara, 2011).

3 http://www.ifac.org/financial-crisis/
4 Green paper audit policy: lessons from the crisis. http://eur-
lex.europa.eu/lexuriserv/lexuriserv.do?uri=com:2010:0561:fin:en:pdf
5 European Commission’s green paper, audit policy: lessons from the crisis ifac response

http://www.ifac.org/sites/default/files/publications/files/european-commission-s-gre.pdf
82 International Journal of Accounting and Taxation, Vol. 2(3), September 2014

Based on these researchers’ findings and on our analysed case results, we

suggest that the independence of financial auditing could be improved by finding
solutions that eliminate, as much as possible, the material connections between the
auditors and those being audited.

To accomplish their mission, financial audit officials and auditors must

comply with several basic principles of ethics that are required by The Code of Ethics
for Professional Accountants. Both the activity and auditors themselves must be
independent. The fundamental principles stated by the ethics code include the
following: integrity, objectivity, professional competence and due care, confidentiality,
and professional behaviour.6

Although it is not our intent to detail the principals here, we underscore the
importance of independent financial audit activity to ensure that the opinion of the
auditors will be credible and consequently useful.

Using different criteria one can identify several types of financial audit activity.
In our opinion, two types are particularly important to ensure independence. Thus,
taking in account the organisational position of the activity, one can examine internal
audit and external audit. Internal audit is organised inside of any entity required to
respond to the interests of that entity management. As “an employee”, an internal
auditor is materially connected to the management interest and therefore not always
objective; the auditor might be considered relatively independent. External financial
audit is an activity that comes from outside an entity. The auditors are not employees;
consequently, the auditors are viewed as more objective and their independence
appears to be more real.

Another criterion for classifying the forms of financial audit is the

organisations to which the auditors belong. From this point of view, financial audits
are exercised by auditors belonging to the following: entities (internal auditors),
professional organisations and supreme audit institutions. The last two forms appear
as an external audit because these forms come from outside an entity. The difference
is related to the fact that the supreme audit institution (SAI) usually belongs to the
Parliament and exercises financial audit on the public funds.

6The Code of Ethics for Professional Accountants (revised 2006), International Ethics Standards
Board for Accountants, 2008, http://web.ifac.org/publications/international-ethics-standards-board-
for-accountants/code-of-ethics#2010-handbook-of-the-code-o
Ioan Gheorghe Tara 83

There is also a very useful difference between the professional organisation’s

audit and the audit of the SAI. Namely, there is no material connection between those
two audits as long as the financial audit activity is compulsory for public agencies and
without any direct payment. That procedure ensures stronger objectivity and actual
independence.

This paper is structured in the following manner. First, we provide an

overview of the primary approaches regarding financial audit independence in both
scientific literature and in the regulators’ work. We then provide an analysis of data
published by the Big Four auditing firms and their audited companies and the
Romania Court of Accounts, along with the results and proposals of other authors in
the field. The final portion draws conclusions and explains further proposals.

The Main Scientific Background and Regular Framework

The independence of financial auditing is an important requirement for

financial information credibility. To increase confidence in the reality of financial
information, there is a need for an independent opinion. Therefore, regulators
examined the independence of financial audit when issuing the international standards
as examples of good practices in the field.

According to the International Standards of Audit (ISA 200) 7, financial audit

consists of the verification and certification that is independently conducted by a
responsible professional regarding the annual accounts and financial statements of any
company and is aimed at expressing an opinion connected to the reality of
information issued by these companies’ synthetic documents.

In an independent examination and expression of opinion on the financial

statements of an entity, the financial audit role is to report on the truth and fairness of
the financial statements on behalf of their users. Auditors provide an opinion on
whether the financial statements are prepared in accordance with an acceptable
financial reporting framework (e.g., the international standards of financial reporting)
and with any specific statutory requirements (e.g., rules and laws).

7 http://www.ifac.org/sites/default/files/downloads/a008-2010-iaasb-handbook-isa-200.pdf
84 International Journal of Accounting and Taxation, Vol. 2(3), September 2014

The INTOSAI’s Code of Ethics8 issued by the Auditing Standards Committee

at the XVI Congress in 1998 states that “the auditor should behave in a way that
increases, or in no way diminishes their independence,” and “in all matters relating to
the audit work, the independence of auditors should not be impaired by personal or
external interests.” The auditors must be independent not only in fact but also in
appearance.

As the national professional organisation of certified public accountants

(CPAs) in the United States, the American Institute of Certified Public Accountants
(AICPA) defines the independence of audit as an absence of interests that create an
unacceptable risk of material bias with respect to the reliability of financial statements
(Elliott & Jacobson, 2002).

Regulators’ emphasis on enhancing the real independence of financial auditing

is exemplified by the Sarbanes-Oxley Act (“The Act”), which after 2001 placed the
audit committee - rather than management - in charge of hiring auditors and
overseeing engagement. The act also prohibits auditors from providing certain non-
audit services to clients and imposes mandatory audit partner rotation. These
measures were a part of Congress's response to financial scandals at Enron,
WorldCom, and elsewhere. Congress also established independent oversight of the
auditing profession through the Public Company Accounting Oversight Board
(PCAOB) for the audits of issuers. 9

Another important regulator is IFAC, which provided an answer to the

proposals coming from the European Commission with the document “Green Paper
Audit Policy: Lessons from the Crisis”. 10 The main provisions of the EU document
referred to the following issues: a possible conflict in the auditor being appointed and
remunerated by the audited entity; whether the appointment by a third party was
justified in certain cases; and whether the continuous engagement of audit firms
should be limited in time. The EU Commission proposals referred to the
improvement of the independence of financial audit. The answer11 from the IFAC
was essentially “not” being justified that there are enough provisions of the actual
audit standards to properly cover all the issues.

8 http://www.tide.org.tr/uploads/INTOSAI_COE_and_Standards_01-05.pdf
9 http://pcaobus.org/rules/rulemaking/docket037/release_2011-006.pdf
10 http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2010:0561:FIN:EN:PDF
11 http://www.ifac.org/sites/default/files/publications/files/european-commission-s-gre.pdf
Ioan Gheorghe Tara 85

The Institute of Internal Audit Standards defines the concept of the

independence of financial audit in the following way: “The independence is the
freedom from conditions that threaten objectivity or the appearance of objectivity.
Such threats to objectivity must be managed at the individual auditor, engagement,
functional and organisational levels.”12

The Independence Standards Board (ISB) came into existence in May 1997
with a mission to set up independence-related standards that can be applied to the
audits of public companies for serving the public interest and for protecting and
promoting the confidence of investors in the securities market.13 In 2001, however,
the organisation closed its doors without accomplishing the mission of setting up an
independence framework. Discussing the shutdown, Professors Alan S. Glazer from
Franklin & Marshall College and Henry R. Jaenicke from Drexel University (Glazer &
Jaenicke, 2002) noted the “pathology of the ISB’s conceptual framework project,
which ultimately affected the board’s ability to survive”.

Despite the fact that the real independence framework is not about “threats
and safeguards” and “independence in appearance,” Elliot and Jacobson (1998), in
their paper “Audit independence: concepts and application”, designed a set of eight
principles for regulating independence. The principles are consistent with the
researchers’ approach toward the independence of financial audit as being what
AICPA accepted as “an absence of interests that create an unacceptable risk of
material bias with respect to the reliability of financial statements.”

Other researchers consider both the independence of financial audit and the
different ways in which financial auditors behave in certain circumstances, noting a
connection between the conditions in which auditors perform their mission and the
type of audit opinion. As human beings, auditors could be biased and react differently
in different conditions. In this respect Kunda (1990), Thompson and Loewenstein
(1992) and Babcock and Loewenstein (1997) demonstrated that people process
information in a biased, self-interested fashion and that this behaviour is “strong,
automatic and unconscious”.

12http://www98.griffith.edu.au/dspace/bitstream/handle/10072/34073/64443_1.pdf?sequence=1
13 http://www.readyratios.com/reference/accounting/independence_standards_board_isb.html
86 International Journal of Accounting and Taxation, Vol. 2(3), September 2014

The auditor’s independence can be influenced by the connection with the

amount and the fee of the non-audit services, Steven Cahan & Co demonstrated in
2008.

In a paper, published in 2008 in “The Journal of International Financial

Management & Accounting”, Z Jun Li & Co showed that the independence of the
auditors determines not only the quality of the audit but will also influence the
decisions of the investors.

Auditors generally want to be rehired by their client, which is why

unfavourable audit opinions are likely to be issued only in the case when such an
interest does not exist (Levinthal et al., 1992). Rosman (2011) showed that financial
auditors are adaptive in ill- structured tasks and Geiger and Raghunandan (2002)
confirm the SEC opinion that auditors are influenced by litigation pressure. Geiger et
al. (2005), in their paper titled “Recent Changes in the Association between
Bankruptcies and Prior Audit Opinions”, documented a connection between financial
auditors’ decisions and the degree of the regulation of the audit activity and the
audited companies.

Deborah L. Lindberg and Frank D. Beck14, in their scientific paper “CPAs’

perceptions of auditor independence: an analysis of views before and after the
collapse of Enron”, found that CPAs’ perceptions of the effects of non-audit services
on auditor independence are more negative after the bankruptcy of Enron, compared
to CPAs’ perceptions of such services on auditor independence before the bankruptcy
of Enron” and that “auditors believe non-audit services and other issues that threaten
auditor independence detrimentally affect the public’s perception of independence to a
greater extent than they adversely influence actual independence.”

The most eloquent study on which we primarily base our conclusions is

“Auditor Independence, Conflict of Interest, and the Unconscious Intrusion of Bias”,
a scientific paper published by Moore et al. (2003) from Harvard Business School.
The authors conducted a laboratory study on the behaviour of financial auditors in
different circumstances, suggesting that modifications occur in auditor decisions
under certain circumstances. The conclusions from their experiments include the
following:

14 http://aaahq.org/audit/midyear/03midyear/papers/AuditorIndep-paper1-AuditingSection.isu.pdf
Ioan Gheorghe Tara 87

People tend to be proactively responsive to those to whom they expect to be

accountable. An auditor who feels accountable to his client is more likely to issue a
clean, unqualified audit report than one who feels accountable to an audit partner in
his firm. The conclusion is also supported by others (Buchman et al., 1996; Tetlock,
1983) and primarily reflects the weaknesses of the independence as a principle when
an auditor knows he is accountable to someone. The conclusion supports the idea of
rotation and of a third part in the process of assigning the auditors.

The second conclusion is that financial incentives have a stronger influence on

public reports than on private beliefs. It takes very little to produce biased judgments.
What matters, in our opinion, is the fact that the auditors’ reports are influenced,
stronger or weaker, by financial incentives. The conclusion supports the idea of an
audit that is not paid by the audited firm.

“The strength of partisan affiliations has an important moderating influence

on the degree to which people’s private beliefs are swayed in the direction of a
partner’s interests”, and “The accountability relationship, rather than financial
incentives, proved the stronger influence on judgments”15. In addition to financial
incentives, there exist psychological factors of which even the auditors are not aware.
Both categories affect the independence of financial audit.

Method and Data

The second experiment by Moore et al. (2003) takes into account the scientific
results of a sample of the following three categories of auditors: fixed paid, paid for
performance and interested in future business. The conclusions refer to these
categories and reflect the connection between auditors’ decisions and financial
incentives. Financial incentives strongly influence the decisions of auditors in the
“fixed paid” and “paid for performance” categories. It is also demonstrated that
auditors interested in future business with clients may issue an influenced opinion.

We also consider the results when the sample is compounded by the two
groups “for payment” and “not at all paid” by auditor clients.

15 Moore, D. A.; Loewenstein, G.; Tanlu, L.; Bazerman, M. 2003. Auditor independence, conflict of
interest, and the unconscious intrusion of bias. Allston, MA: Division of Research, Harvard Business
School. http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.9.2829&rep=rep1&type=pdf
88 International Journal of Accounting and Taxation, Vol. 2(3), September 2014

The first group is formed by the three firms from the Big Four, which are
active on the Romanian audit market, and the second group consists of the Romania
Court of Accounts. The representatives of the Big Four exercised financial audit,
having been paid on the basis of the contract with their clients, whereas the audit of
the Court of Accounts is not at all paid by the clients and there is no contract between
them. Relying on the cited researcher findings, particularly those by Moore et al.
(2003), and performing an analysis on our samples and on the public information, we
suggest a strong influence from the moneyed relations on the financial audit opinion.
Furthermore, we believe that eliminating money from the relation between the
auditors and the audited is not only possible but also an objective necessity to
improve financial audit independence.

We gathered data from the audited companies’ sites in the case of Ernst and
Young, KPMG and PricewaterhouseCoopers and from the annual public report of
The Court of Accounts.

In the past three years, as shown in Table 1, those three firms audited 180
companies in Romania. However, because we found the financial reports from the
sites of only 87 audited companies, the sample is taken from this number.

From an analysis of the information in Table 1, one may conclude the following:

- Despite the fact that we found the audit reports for only 48 percent of all those
reported to be audited, we consider this number satisfactory for drawing
conclusions. Each of the three auditing companies audited a certain number of
entities in each surveyed year from 2009 till 2011. The number of audited entities
differs only slightly for each year and therefore does not affect our conclusions.
- The “Big Four” firms audited essentially the same entities for two or three years.
- Of the 87 audited entities, 43 were audited for three consecutive years, 22 were
audited for two years and 22 were audited for one year. Overall, more than 74
percent of the audited companies received an audit opinion for two or three
consecutive years.
- The number of the “for one year” audited companies is much lower than the “for
three years” companies, indicating the preference and the care of the audit
companies in preserving the clients’ portfolios. The increasing trend from the one
year to the three years can be observed in Figure 1.
Ioan Gheorghe Tara 89

Figure 1: The Evolution of the Number of Audited Entities within Three Years

- No audit company suggests a different trend from that of the whole. All of the
companies audited the largest percentage for two or three years and only a small
percentage represent entities from the “for one year” category. Therefore, auditors’
interest in retaining business with the same companies is strong and almost
generally notable, although it is uncertain whether money is the only cause.
- Data from the Court of Accounts are not included in this table because this
institution audits the same state agencies, every year, and nearly the same number. It
has no contractual obligation to its clients. Therefore, in this case, the number of
entities audited is not relevant for our study purpose.

To document the interest of the audit companies for preserving the portfolio
of the clients by auditing the companies for consecutive years, we analyse data from
Table 2 that reveals the connection between the number of audited years and the
financial audit opinion. The following observations can be made:

- All the audit companies, as a whole, issued a clean audit report for all audited years
(one, two or three) in 86% of cases. In this percentage are included the majority of
entities that were audited three consecutive years and the majority of those from the
group of two years.
- Only nearly 12% of the cases refer to the entities that received a modified report for
all the audited years. There is one case with a modified report in one year from three
audited years and another case with a modified report in two years from three
audited years.
- The trend shows an increase in the percentage of clean reports in the case of the
companies audited for two and three years, as shown in Figure 2.
90 International Journal of Accounting and Taxation, Vol. 2(3), September 2014

Figure 2: The Evolution of the Granting Process of Favourable Opinion

- Auditors could be tempted to issue a clean audit report to improve the

relationship with clients. It is also possible that a portion of the clean reports were
issued without any interest and simply reflect a positive reality in certain companies.
However, the size of the sample of companies with clean reports is large enough to
make us believe that a connection exists between the type of audit opinion and the
number of audited years at the same companies. It matters less whether it is a
proportion or whether this factor is proportionally larger or smaller among others. In
future research, we will calculate the contribution of all the factors. The simple fact
that such a subjective factor could exist leads us to believe that the independence of
financial auditing might be improved by eliminating such an incentive for audit
companies to audit firms in consecutive years.

The connection between the type of the financial audit opinion and the audit
companies’ interest in keeping the portfolio of the clients to maintain or increase
revenue appears more obvious if we separate and calculate the number and the
proportion of each category from the whole. We examined the proportions of the
modified report in the total reports for the “three years audited” and similarly for each
category and compared them with figures from the Court of Accounts. The Court of
Accounts, and, respectively the SAI, audits public resources and uses the INTOSAI’s
audit standards, which are fundamentally similar to IFAC standards. The SAI has no
contractual or material connections with those that are audited. The audit is
conducted by auditors who are completely independent from the audited entities and
are paid from sources other than from the audited entities’ budget. In addition, there
is no interest in preserving the portfolio of the clients because they remain the same
each year. The data in Table 3 suggest the following:
Ioan Gheorghe Tara 91

- The two specific groups of audit companies include Ernst and Young,
KPMG, and PricewaterhouseCoopers in one group and the Court of Accounts in
another group. In the past three years, the former group audited 87 entities as follows:
43 for three consecutive years, 22 for two years and 22 for only one year. Each year,
the Court of Accounts audited 1510 entities, which represented nearly the same
number and the same entities every year. This figure is comparable to the 43 of the
first group because the data refer to the same content, namely, the number of entities
audited for three consecutive years.

- The first group that audited 43 entities for “three years” issued an
unmodified report in 88.37% of them and only 11.62% received a modified report. In
the case of the Court of Accounts, from the 1510 entities audited for three
consecutive years, merely 4% received a favourable opinion (unmodified report) and
for the rest of the 96%, the reports were modified because of material misstatements.
The trend is the same in the case of the category “for two years”. The two groups
demonstrate a large difference, as shown in the following two figures.

Figure 3: The Differences concerning Granted Unmodified Report (Trend and

Gap)

- The unmodified report percentage in all three years is much lower in the
case of the SAI, which at most is nearly 20%, compared with the percentage of the
Big Four, which is more than 80%. The percentage of the unmodified report in the
case of the SAI tends to decrease whereas the Big Four’s trend shows an increase.
92 International Journal of Accounting and Taxation, Vol. 2(3), September 2014

That finding suggests that there exists a possible temptation of the Big Four
to connect the audit opinion with an interest in maintaining the portfolio of the
clients.

- Concerning the modified opinion, Figure 4 also suggests a large gap between
the two groups. The large percentage of modified opinions in the case of the SAI,
between 80 and 100, in our opinion might reflect the lack of any material interest of
this auditor to its clients. The percentage of the modified opinion is very small,
between 10 and 20, in the case of the Big Four. Among the causes is a material
interest in either being aware or unconscious.

- The trend of the two groups, showing an increase in the percentage of the
modified report from one to three years in case of the SAI and a decrease in the case
of the Big Four, confirms the particularities as far as the behaviour of these two
auditors is concerned.

- We believe there is not a strong need for evaluating the contribution of this
factor to the size of the gap. Numerous researchers have already demonstrated the
particularities of the auditors’ behaviour in different circumstances. In this context
our findings are consistent with the results of other scientific researchers, particularly
Moore et al. (2003).

Figure 4 : The Differences Concerning the Granted Modified Report (Trend

and Gap)
Ioan Gheorghe Tara 93

- In the case of the group of audit companies, the largest percentage (22.72%)
of the modified report (unfavourable opinion) refers to the category of “for one year”
audited companies, whereas in the Court of Accounts’ case, the percentage of the
modified reports for the audited companies is relatively the same at 96% for “three
audited years”, 93% for “two audited years” and 84% for “one audited year”. The
Court of Accounts appears consistent in issuing modified reports, whereas the
companies that conduct financial auditing (the first group) show a large percent of
unmodified reports for the “three- and two- year audited entities”. The group also
demonstrates a larger percent of modified reports in the category of “one year
audited”; that is, 22% compared with 4.54% and 11.62% for the other categories,
respectively.

- Notably, the audit companies have a large proportion of unmodified reports,

between 82.35% and 94.44% in the case of entities audited “for three years”. This
result could indicate a common behaviour in connecting the type of the audit report
with the financial interest.

In our opinion, the most important conclusion from this analysis is that the
Court of Accounts having more independence was not connected to its decision on
the financial statements of the audited entities and its financial needs. However, as the
figures show, the audit companies are interested in keeping clients for additional
years, ensuring that their revenue is stable. For that reason, the majority of these firms
reject the principle of rotating auditor assignments. As the data and the published
information show, the audit companies are tempted to use their lever of “audit
opinion” to maintain clients and to achieve their financial targets. These conclusions
are consistent with the results of previous scientific research concerning the behaviour
of financial auditors, as presented in the first chapter.

Discussion and Conclusions

Because of the independence of the Court of Accounts, its opinions on

financial statements are different from the audit companies, which might have a real
interest in issuing unmodified opinions.
94 International Journal of Accounting and Taxation, Vol. 2(3), September 2014

Regarding the internal rules of the Court of Accounts, the accountability and
financial discipline appear to be different in the case of the state companies from the
private companies that are primarily audited by the representatives of the Big Four. In
our opinion, all the companies, whether state-owned or privately organised, perform
their activity in the same country in which the laws are the same for everyone and in
which fiscal evasion, corruption and temptation to easily gain money are the same
throughout the country.

In explaining the difference between the Court of Accounts’ percentages and

the audit companies’ percentages, there is also a need for more accuracy regarding the
proportion that the factor that we describe affects the percentages. In other words,
audit companies’ interest in maintaining clients is not the only factor that explains
such a large gap. Other factors include the following: the different internal rules of the
auditors, certain positive behaviour of foreign audited companies, the difference
between public and private money and professionalism in complying with the
international standards of audit.

However, one cannot exclude the factor of the material interests that
influence the behaviour of the auditors as demonstrated in numerous previous
studies.

Future work will offer a larger sample, particularly examining more relevant
SAI activity and a model for singling out this factor contribution.

However, we believe that the actual results are sufficient for considering that
the independence of financial auditing is affected by the material interests of the
financial auditors. The results are also consistent with previous research and therefore
lead to several proposals. The Big Four are the same throughout the world and as a
result their auditors’ behaviour is similar to that I demonstrated. The SAI is also
working similarly in Romania and in any other countries. Therefore my conclusions
can be considered an increment both theoretically and practically.

Proposals

The Romania Court of Accounts, similar to nearly all SAIs, is a good example
of the independence of financial auditing. The INTOSAI standards cover all the
necessary guidelines for auditors and are fundamentally similar to those of IFAC.
Ioan Gheorghe Tara 95

We demonstrated that the independence of such an institution is not affected

by the material interests as it is in the case with the “Big Four” as audit companies.
Our proposal aligns with the introduction of a rotation principle in the auditors’
assignment or with the establishing of a special audit mission for large companies,
banks and other financial institutions. The special mission refers to financial audits
conducted under the same conditions of independence as that of SAIs.

The European Commission’s green paper refers to such approaches but

received an elegant “not” in the response from the IFAC. In this respect, we consider
that it is worth making an attempt, ignoring the fear of bureaucracy or the mitigation
of the audit services quality that IFAC claimed.

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Table 1: The Audit Situation for the Past Three Years (2009-2011)

Drawn by the author

Table 2: The Granting of Favourable Audit Opinions

Drawn by the author

 Ioan Gheorghe Tara 97

Table 3: The Connection between the Audit Opinion and the Audited Period

*The Public Report on 2011,www.curteadeconturi.ro

** Data processed by the author relying on the Public Report and considering the
specific audit activity of the Court of Accounts in the public area.
***The figures are approximated.
Drawn by the author

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