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, http://www.pobauditpanel.org. 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 Institute. "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 fraud. -- 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 profession. 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 Exchange -- 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