It is often argued that this practice impairs an accountant/auditor’s independence. For this reason, the Sarbanes-Oxley Act of 2002 imposed a one year cooling-off period before publicly held companies may hire former auditors as employees of key positions. (Wright & Booker, 2005) The purpose of the cooling off period is to ensure the former auditor can maintain his or her independence. Public companies try to hire their former auditors in hopes of increasing investors’ confidence. By having a former auditor work for a public company, investors tend to assume that the financial statements will be free of misstatements and can be relied on. Companies also like to hire former auditors because they have already developed an accountant-client relationship. The auditor probably has a good idea about how the business operates, so it makes it easier for training purposes. On the flip side, hiring a former auditor can have negative implications too. It is easier for a former auditor to conceal fraudulent activities because he or she knows what the independent auditors will be looking for. The cooling-off period also can make it difficult for former auditors to find new jobs. Generally, people try to find a job in close proximity to them or in a business that is familiar to them. Not being allowed to work for a former client for a year limits the opportunities after leaving an
It is often argued that this practice impairs an accountant/auditor’s independence. For this reason, the Sarbanes-Oxley Act of 2002 imposed a one year cooling-off period before publicly held companies may hire former auditors as employees of key positions. (Wright & Booker, 2005) The purpose of the cooling off period is to ensure the former auditor can maintain his or her independence. Public companies try to hire their former auditors in hopes of increasing investors’ confidence. By having a former auditor work for a public company, investors tend to assume that the financial statements will be free of misstatements and can be relied on. Companies also like to hire former auditors because they have already developed an accountant-client relationship. The auditor probably has a good idea about how the business operates, so it makes it easier for training purposes. On the flip side, hiring a former auditor can have negative implications too. It is easier for a former auditor to conceal fraudulent activities because he or she knows what the independent auditors will be looking for. The cooling-off period also can make it difficult for former auditors to find new jobs. Generally, people try to find a job in close proximity to them or in a business that is familiar to them. Not being allowed to work for a former client for a year limits the opportunities after leaving an