Learn something new every day More Info... by email
Opinion shopping is a practice where companies dismiss auditors if they believe the auditors might issue an adverse opinion. The legality of this practice can be complex. It could be considered a questionable accounting activity that might be illegal under certain regulations. If companies can come up with a legitimate reason to dismiss auditors, however, they may be able to escape legal liability for opinion shopping.
This can occur in several ways. One very common example comes up when a company decides to stop using an accounting firm it has a history with, known as an incumbent auditor, in favor of a new company. There may be many reasons for this activity, but opinion shopping can be a potential issue. The company may be concerned that the auditor will provide a negative opinion on the next audit, and wants to avoid the exposure to risk created by a warning that its accounting practices may not be sound.
Another form of opinion shopping can arise when a company dismisses auditors before they have a chance to deliver an opinion. This decision could be based on warning signs that the auditors are not going to issue a friendly report. The company provides compensation for the hours spent on the project so far, but makes sure the auditors do not issue an opinion by canceling the contract before it is finished. It can be difficult to avoid accusations of opinion shopping in such circumstances, as there are few legitimate reasons to halt an audit conducted by a reputable firm once it is in progress.
New auditing firms may meet with the company to discuss the type of work needed. While auditors attempt to maintain independence for both professional and legal reasons, they may be susceptible to hints in meetings with a company. The fear with opinion shopping is that an auditing firm could be provided with a suggestion that it will land the contract if it is willing to provide a positive opinion in the audit. Unethical companies might take advantage of this to land a well-paid contract.
Several mechanisms are designed to prevent opinion shopping and make companies more accountable. Professional accounting ethics play a role, as this kind of activity is not deemed acceptable by professional organizations and licensing authorities. Regulations also make it more difficult to abuse audits, as these studied independent opinions of finances and record keeping practices are designed to protect the public and investors. Government agencies want to ensure that auditing is as accurate and reliable as possible.