Shifting sands: the changing relationship between financial executives and auditors.

• Author: Sayther, Colleen

When I started auditing, I remember a training videotape called "Auditor in Court," with memorable images of the auditor being questioned by an ambitious prosecutor over shoddy audit procedures. I understood my role as ensuring that the financial statements of the company I was auditing reflected the company's transactions appropriately.

The relationship with the auditors has evolved over the last few decades, as audit firms began getting increasingly into providing services other than the annual audit. When I left auditing for a corporation, I embraced the idea of auditors as "business partners." It was far easier to ensure a transaction would pass their inspection if they were involved in helping to structure it.

With complex transactions, particularly, I always asked my auditors' advice to ensure that my interpretation of complex rules aligned with theirs. This was healthy dialogue that served the company and investors well. It did not seem to be an independence issue, as I viewed the auditors' primary role as ensuring the integrity of the financial statements. This enhanced the annual audit process, as the auditor was already familiar with the complex transactions prior to the year-end audit.

Arguably, in companies like Enron, the role of the auditor as business partner was taken too far, with the consulting services provided by the audit firm greater than the annual audit. Then, the auditor's primary role was no longer being to ensure financial integrity, but ensuring that those consulting dollars kept rolling in.

Sarbanes-Oxley's intent with respect to auditors was to focus them, appropriately, on auditing. Auditing firms can no longer offer consulting services to their audit clients. Auditors meet more often with corporate audit committees, which are now empowered to hire them. The relationship has definitely shifted. The auditor's client is no longer management, but rather the audit committee, impacting the manner in which management and the auditor communicate.

An unintended consequence of the regulation is the changing relationship--and communication--between financial executives and their external auditors. The relationship is increasingly adversarial, with financial executives no longer seeing the auditor as a valued business partner. Indeed, even thinking of the auditor that way is dangerous, as it could raise independence issues. And, outside auditing firms are gun-shy about providing guidance that could be viewed as...