NEW YORK, Sept. 6 /PRNewswire/ -- The Panel on Audit Effectiveness,
appointed by the Public Oversight Board (POB) to thoroughly examine the
current audit model, today released its final Report and Recommendations for
the accounting profession. The document is available on the Panel's website,
According to Panel Chair Shaun F. O'Malley, the Report's goal is to foster
more effective audits that improve the reliability of financial statements,
enhance their credibility, contribute to investors' confidence in the
profession, and improve the efficiency of the capital markets. Among those
who participated in public hearings and submitted written comments on the
Panel's Exposure Draft were the Securities and Exchange Commission (SEC),
state boards of accountancy, national and international standards-setters,
accounting firms, the American Institute of CPAs, the corporate community, the
International Federation of Accountants, and the Financial Executives
"Clearly the conduct of audits and the governance of the profession need
substantial improvement, particularly as the global economy grows more complex
and the demand on our capital markets grows more intense," said O'Malley.
"While our Report demonstrates that both the profession and the quality of its
audits are fundamentally sound, the recommendations we put forth are vital to
spur the needed improvements. Their implementation will require the efforts,
support, and cooperation of the profession, the SEC, and all the others to
whom the recommendations are addressed."
Among the Panel's major recommendations are:
-- Auditors should perform some "forensic-type" procedures on every audit
to enhance the prospects of detecting material financial statement
-- The Auditing Standards Board should make auditing and quality control
standards more specific and definitive to help auditors enhance their
professional judgement; in certain specified areas, audit firms should
review, and where appropriate, enhance their audit methodologies,
guidance, and training materials; and peer reviewers should "close the
loop" by reviewing those materials and their implementation on audit
engagements and then reporting their findings.
-- Audit firms should put more emphasis on the performance of high quality
audits in communications from top management, performance evaluations,
training, and compensation and promotion decisions.
-- The POB, AICPA, SEC Practice Section of the AICPA (SECPS), and SEC
should agree on a unified system of governance under a strengthened POB
that would oversee standard setting (for auditing, independence, and
quality control), monitoring, discipline, and special reviews.
-- A majority of the members of the Independence Standards Board (ISB)
should be from outside the profession, and the SEC should encourage and
support the ISB in carrying out its mission.
-- The SECPS should strengthen the peer review process, including
requiring annual reviews for the largest firms, and the POB should
increase its oversight of those reviews.
-- The SECPS should strengthen its disciplinary process by requiring
member firms to take actions regarding partners involved in certain
alleged audit failures.
-- Audit committees should pre-approve non-audit services that exceed a
threshold amount and should consider certain specified factors when
doing so. The ISB should identify the factors.
-- The International Federation of Accountants should establish an
international self-regulatory system for the international auditing
Charles A. Bowsher, Chairman of the POB and former Comptroller General of
the United States, praised the Panel's work and reiterated O'Malley's call for
cooperation. "The Panel members and their staff have completed the most
thorough examination of the audit process ever undertaken in the long history
of the accounting profession," he noted. "Their work has the common and noble
goal of improving the reliability and credibility of financial statements.
And while implementing all the specific recommendations will require
tremendous efforts by all of those involved, I'm confident the various
stakeholders recognize that they will all ultimately benefit from finding
common ground on which to strengthen the profession for the future."
At the request of SEC Chairman Arthur Levitt, the POB appointed the
eight-member Panel in 1998, arming it with a mandate to review and evaluate
the way independent audits are performed and the effects of recent trends in
auditing on the public interest. Named to the distinguished Panel were two
former commissioners of the SEC and representatives from corporate America,
the accounting profession, and academia. In addition to O'Malley, former
Chairman of Price Waterhouse LLP, the members are:
-- Dennis H. Chookaszian, Chairman, Executive Committee, CNA Financial and
Chairman and CEO, mPower
-- Paul Kolton, Chairman, Steering Committee, FASB Business Reporting
Research Project and former Chairman and CEO of the American Stock
-- Bevis Longstreth, Counsel to Debevoise & Plimpton and former
Commissioner of the SEC
-- Louis Lowenstein, Simon H. Rifkind Professor Emeritus of Finance and
Law, Columbia University
-- Zoe-Vonna Palmrose, PricewaterhouseCoopers Professor of Auditing,
University of Southern California
-- Aulana L. Peters, Partner of Gibson, Dunn & Crutcher and former
Commissioner of the SEC
-- Ralph S. Saul, former Chairman of the Board of CIGNA Corporation
The Public Oversight Board is an independent private sector body that
oversees the self-regulatory programs of the SEC Practice Section of the
American Institute of Certified Public Accountants.
SOURCE Panel on Audit Effectiveness