Magazine article The CPA Journal

Second Opinion, Opinion Shopping and Independence

Magazine article The CPA Journal

Second Opinion, Opinion Shopping and Independence

Article excerpt

Second Opinion, Opinion Shopping and Independence

Businesspeople and professionals ca confuse seeking a second opinion with troublesome practice, opinion shopping. The latter practice has adverse effects on professional independence and has occasioned pronouncements from the SEC and AICPA to disclose and prevent it. The authors' extensive research results in an article clearly identifying opinion shopping, describing efforts to deal with it, and presenting recommendations.

Why do people seek second professional opinions on a wide variery of matters? A second opinion is standard procedure in medical practice when a patient is faced with major surgery, and this procedure is not uncommon in some aspects of dentistry. Second opinions are frequently sought when appraising valuable and unusual property, and are generally required by insurers. In complex legal matters, businesspeople feel more comfortable with a second opinion from a lawyer.

Being wrong -- performing unnecessary or unsuccessful surgery, or taking or failing to take a particular course of action, can lead to severe penalties and other consequences in today's complex environment. If businesspeople are found wrong, they want to be able to demonstrate that they consulted fully with competent and knowledgeable professionals.


Certainly, this scenario applies to the accounting profession as well. Numerous intricate frnancial transactions with uncertain results under tax laws and government regulations are commonplace. The accounting in many of these cases is not a matter of arithmetic, but of classification and disclosure, where judgmental decisons are the paramount factors in reaching an opinion. Management has prime responsibility for financial statements and is acting prudently when incurring the cost of a second opinion on innovative and complex transactions.

Unfortunately, it is clear that the search for a second opinion is not always motivated by a desire to be right. Some managers have a preconceived objective in mind that can only be achieved by using a particular, and usually less desirable, accounting treatment. They will seek the views of successive accountants until they locate the one who will approve the desired treatment. This agreeable accountant will receive a reward in the form of apointment as the business's auditor. This insidious practice is not the seeking of a second opinion; it is opinion shopping.

Opinion shopping has been a topic of discussion for the past decade. It has been the subject of SAS 50 and SEC reporting release FRR 31. It has been discussed in SEC enforcement releases, AAERs 14, 32, $4, and 220 and was considered by the Treadway Commission. It has been a factor in several alleged audit failures.


Opinion shopping was defined by the SEC in FRR 31, as the practice of seeking an auditor willing to support a proposed accounting treatment designed to help a company achieve its reporting objectives even though doing so might frustrate reliale reporting. The reporting objectives envisioned in opinion shopping would be to improve reported operating results or the financial condition, by obtaining an interpretation of GAAP that is not consistent with those of the past or with the economic substance of a transaction, or by obtaining support for a change to a less preferred or marginally acceptable accounting treatment.

Opinion shopping is not limited to public companies, which have particular concern about earnings per share reporting. It is a factor in private companies seeking bank loans or other financing, and for nonprofit organizations that issue financial statements to the public and must report under governmental regulations.


Several factors motivate managers to shop for opinions, including the desire to attain or exceed stated goals and objectives and, in extreme cases, the urgent need to survive. …

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