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SEC Examining Auditing Firms That Also Peddle Corporate Tax Shelters
Accounting firms that audit corporations are supposed to be independent and objective. Are they as independent and objective if they also sell those same corporations tax shelters? What if the sales price for the tax shelter is a contingency fee; the more the company saves as a result of the tax shelter, the more the auditing firm earns?
As one would expect, the SEC is investigating these practices. The concern is that such tax shelter advice creates a conflict of interest. This concern especially is present with the contingency fee arrangement, because that gives the auditing firm too great a stake in the corporation's bottom line, and encourages the auditor to uphold the tax shelter when the auditor ordinarily would not do so.
Source: Wall Street Journal, March 24, 2000
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