Credit Agencies and Auditors

There has been a lot of press lately about the three credit rating agencies, Moodys, Standard and Poors, and Fitch, and their role in the credit crisis. In particular, some have pointed to the fact that companies hire these credit rating agencies to rate their securities and this creates a conflict of interest that leads to higher ratings. The same criticism has been lobbed at financial statement auditors for decades--especially when there have been some highly publicized audit failures involving undetected fraud. Interestingly, Congress is doing something about this conflict for the credit rating agencies as described in a recent Bloomberg article that says:

The U.S. Senate last week approved the creation of a panel within the Securities and Exchange Commission that would divvy up the rating business for new securitized investments, such as mortgage-backed securities, among all the companies.

It seems reasonable that a similar change could be in the wind for auditors if they are perceived to lack independence.