By Mike Brewster
BASIC SPLIT. Morgan himself -- who knew that a qualified audit would hurt his chances of finding other investors for the railroad -- took his objections to May's superiors. But they backed May and wouldn't change the opinion. Morgan grudgingly acknowledged his respect for the Central Pacific's outside audit team and backed off.
A few years later, May would pen auditing standards on how to treat both depreciation and income for a company with many subsidiaries. Perhaps more important, he deduced from his run-in with Morgan -- and those he had with other august clients -- that auditors would best earn the respect of their clients and the investing public by being completely independent from their clients, both in fact and appearance. Thus the modern notion that auditors shouldn't be performing consulting projects for their audit clients can be traced to May.
By the 1920s, May and his peers at other firms were aggressively developing audit standards for railroads, steel companies, and the other major engines of the U.S. economy. It was the auditors themselves -- not company managements or any outside regulator -- who decided the format of the audits, what information the audit certificates contained, and how far the audit opinion went in saying what was "true" or not. Soon, proliferating