 The big 4 audit firms are gradually pushing the small and medium sized auditing firms out

ut from
the market because of their business strategy of adding consulting services aside from auditing
big corporations.
 Based on data (provided by the video source), two-thirds of their revenues come not from their
auditing services but on their consultancy services offered to corporate clients.
 Because of this business strategy, these large auditing firms build strong relationships with their
clients, which, I believe eventually then becomes the major factor for the client to avail their
audit services.
 This client-firm relationship is suspected to be the root cause as to why large companies commit
fraud while not being detected through audit.
 An expert said that companies do not invest to strengthening their internal control in a way that
they are not the ones recording complex transactions but instead hire third-party which are
mostly from auditing firms. When this happens, if auditors be the ones to prepare and present
their financial statements, then who will audit auditors?
 Auditing firms building a relationship with large companies who their offer their consultancy
services creates an entrance to the idea of ‘conflict of interest’. This is because their clients will
eventually hire them to audit their financial statements but because of their relationship
established, the principle of independence is impaired.
 Users of the giant corporations’ financial statements need to be assured that the information
they read are reasonably assured to be free from material misstatements. According to an
expert, determining whether fraud or error caused a misstatement or omission is irrelevant.
 However, what could be the reactions of the users of the financial statements who demand for a
fairly prepared and presented information, if they will know that the company and the auditing
firm have a continuing relationship?
 Although this may create suspicion in the minds of the users, however, no one can deny the
importance of consultancy services being provided by the auditing firm. In most cases, these
auditing firms are the ones suggesting their clients how to get away from high taxes while not
directly or explicitly creating an unlawful action. This helps these companies to earn high net
profit.
 Aside from the large corporations becoming the clients of the auditing firms’ consultancy
services, because of complexity in tax laws, even the government requests their aid. This makes
the big 4 accounting firms to create an enormous influence even to the political sector.
 However, the focus here is that creating a client-firm relationship because of the consultancy
services provided by the auditing firm, influences the same firm as they provide audit services to
the same client. In this case, it is already clear that the principle of independence is already
impaired and if we try to connect this to the fraud scandal committed by ABC corporation (firm
sa video), one can say these auditing firms can be the ones helping these corporations to
conceal misstatements in their financial statements.
 That is why many experts strongly suggest that a regulation be imposed wherein auditing firms
will be disallowed in offering consultancy services.