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61 Ohio St. L.J. 1597 (2000)
The SEC and MDP: Implications of the Self-Serving Bias for Independent Auditing

handle is hein.journals/ohslj61 and id is 1609 raw text is: The SEC and MDP: Implications of the
Self-Serving Bias for Independent Auditing
ROBERT A. PRENTICE*
Huge accounting firms, seeking to become one-stop shopping centers for clients,
wish to add legal services to the audit, tax, information consulting, financial
planning, litigation support, and other services they already provide-a
phenomenon known as multi-disciplinary practice (MDP). MDP can aggravate
problems already plaguing objectivity and independence in the auditing
profession. Theoretically, auditors must be objective and independent. However,
there is a large body of behavioral studies demonstrating that, overwhelmingly,
people tend to behave inequitably if it benefits them and they think they can get
away with it-a behavior known as the self-serving bias. Professor Prentice
examines the self-serving bias by surveying the literature from psychology,
decision theory, behavioral finance, and behavioral economics, and examines its
operation in relevant analogous fields, such as law, medicine, and investment
banking. Professor Prentice then applies what we know about the self-serving
bias to the special problems of auditors' mandatory objectivity and
independence. It turns out that auditors, no less than the rest of us, behave in
accordance with the self-serving bias: for example, they are reluctant to issue
qualified opinions and reluctant to refisse their clients' requests for improper
accounting treatment. Moreover, they are even more reluctant to act against the
interests of financially healthy clients and more likely to act in self-defensive
ways with respect tofinancially troubled clients. Professor Prentice concludes by
discussing appropriate SEC responses to the dangers created by the self-serving
bias in auditors who are subject to the exacerbating effects of an MDP.

* University Distinguished Teaching Professor and Ed &  Molly Smith Centennial
Professor of Business Law, University of Texas at Austin.

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