Ensuring the Integrity of Financial Reporting
Response to the following problem:
Three college seniors with majors in accounting are discussing alternative career plans. All three want to enter careers that will help to ensure the integrity of financial reporting. The first wants to become an internal auditor. She believes that by ensuring appropriate internal controls within a company, the financial statements will be reliable. The second wants to go to work in public accounting and perform external audits of companies. He believes that external auditors are independent and can make sure that financial statements are correct. The third student believes that neither choice will be adding much value to the integrity of financial statements because, in both cases, the auditors will be receiving their pay (either directly or indirectly) from the companies they audit. He believes the only way to make a real difference is to work for the Securities and Exchange Commission, using the "arm of government regulation" to force companies to issue appropriate financial statements and then punishing them (through jail sentences and large fines) when their financial statements are misleading. In your opinion, which of these three students will make the largest contribution toward ensuring integrity in the financial statements?