POB Advisory Panel Recommends Ways to Bolster Independent Audits

Article excerpt

An advisory panel appointed by the Public Oversight Board (POB) of the SEC practice section of the American Institute of CPAs division for CPA firms published a report recommending ways to enhance the integrity and objectivity of independent auditors. The report, Strengthening the Professionalism of the Independent Auditor, is a comprehensive study based on prior studies and reports, solicited written comments and extensive interviews with professionals in practice and academia. Making up the advisory panel were Donald J. Kirk, former Financial Accounting Standards Board chairman, George D. Anderson, past AICPA board chairman, and Ralph S. Saul, formerly president of the American Stock Exchange and past director of the Securities and Exchange Commission Trading and Markets Division.

The panel's appointment was prompted by recent public skepticism about the objectivity of the profession and remarks by Walter P. Schuetze, SEC chief accountant, who said auditors were unduly influenced by client views in formulating positions on FASB proposals (see "Schuetze Wary Over CPA Independence on Stock Option Proposal," JofA, Mar.94, page 9).

The advisory panel identified ways to enhance auditors' professionalism and to improve the working relationships between the profession, the SEC and the FASB. Curtis C. Verschoor, senior research professor at DePaul University's School of Accountancy in Chicago, said, "The POB study should alert the profession to the critical need for far-reaching steps to regain public confidence."

Corporate takeovers and business failures of the 1980s gave rise to more powerful corporate boards of directors, says the report, increasing large institutional shareholders' recognition of the boards' obligation as their elected representatives. The report urges the POB, the SEC and others to enhance boards' independence and their accountability to shareholders. "Stronger, more accountable boards," says the report, "will strengthen the professionalism of the outside auditor."

Most of the principal recommendations focus on the relationship between the, independent auditor and the corporate board of directors. It is essential, says the report, to clarify who the auditor's client is. "The board of directors," says the report, "as the representative of the shareholders, should be the client, not corporate management." The panel advises boards to view independent auditors as "natural allies" in protecting shareholder interests. …