When the Auditor is also a Consultant
The advice of consultants can be very beneficial to a firm. However, it can also be very detrimental. One potential problem for a firm's shareholders occurs when a consulting firm also conducts the auditing services for the company. Some advice might be too aggressive in terms of accounting methods . Other advice might just be dubious. However, the income to an accounting firm for conducting an audit is far lower than the fees earned by consulting. Therefore, the auditors may get pressure from their own firm to overlook borderline practices. This is a serious conflict of interest for the auditors . Their duty should be one of effective monitoring for the shareholders. Instead, their bonuses are often dependent on how much money the consulting group earns for the firm. Upsetting the consulting group risks earning a lower bonus. In fact, this conflict may have played a significant role in Enron's demise, as Arthur Andersen was a significant Enron consultant.