by Adrian Albidress, Jr CPA
In 2002, following a string of major accounting scandals, the Sarbanes Oxley act was enacted by Congress. This legislation created a number of new reforms designed to protect investors. One of these reforms was the creation of the Public Company Accounting Oversight Board (PCAOB) to oversee audits of public companies.
For the first time, public companies were now subject to external and independent oversight. For CPA's who had been around the block awhile, this was a major change. Auditors of public companies are now prohibited by the Sarbanes-Oxley Act from providing certain non-audit services, such as consulting, to their audit clients. Why were these non-audit services prohibited? An auditors' independence from their clients' managers can conceivably be compromised because of the large fees that audit firms were earning from these ancillary services.
Investors rely on CPA's to prepare financial statements that they can use to make major decisions. If a mistake is found in a public company’s records that requires correction, it can lead to large swings in the value of the stock. If a CPA lacks independence, they may conceivably be pressured by their public company client to misstate their position in a way that makes the company look favorable to investors.
The concept of independence is drilled into the heads of CPA's, even those like myself who do not work on CPA services* like public company audits. CPA's who audit small businesses not covered by the PCAOB still need to understand how to prepare statements and records that can be relied upon by third parties. They must also understand the potential for misstatement in any financial statements that they are interpreting on behalf of their clients.
Albidress Financial sees that the value of independence is being increasingly recognized and acknowledged in the financial world. For example, we are seeing more and more investing strategies evaluating corporate governance factors in their security selection process. This means that companies who appear to follow better accounting practices are generally chosen over companies that do not. This sometimes falls under the umbrella of "sustainable investing", which also considers environmental and social factors.
In a world that has a growing alphabet soup of professional credentials (CFP, MBA, CFA, CIA, CMA, etc.), the one thing I believe that really distinguishes a CPA is the training we receive regarding independence. Due to the high stakes of investing and regulatory oversite, I don’t know of another profession that focuses more on the subject. With Albidress Financial, I truly appreciate the level of independence we have. We are able to serve our clients based on their specific needs instead of hoping we can offer them a solution from a limited financial product menu. Being independent helps us build a client-centered advice business that is both interesting and purposeful to me in a way that product-oriented sales is not.
*CPA services are not provided by Albidress Financial or LPL Financial.