Academic journal article Journal of Accountancy

ISB Lays Down the Law on Discussions with Audit Committees

Academic journal article Journal of Accountancy

ISB Lays Down the Law on Discussions with Audit Committees

Article excerpt

Nearly two years ago, amidst frustration over the state of auditor independence regulations, the Independence Standards Board (ISB) came into being as part of an agreement between the AICPA and the SEC. Its mission is to improve the standards relating to auditor independence--"the historic soul of the auditing profession," according to ISB Chairman William T. Allen. In the ISB's annual report, he noted that the profession needs "a conceptual understanding of what we mean by independence." In fact, the development of a conceptual framework for auditor independence is the board's most fundamental project. Although completion of the framework is two years away, the board has issued its first statement, proving it is not merely an academic think tank.

ISB Standard no. 1, Independence Discussions with Audit Committees, is brief and to the point. At least annually, the auditor of a public company has to

* Disclose to the audit committee of the company (or the board of directors if there is no audit committee), in writing, all relationships between the auditor and its related entities and the company and its related entities that in the auditor's professional judgment may reasonably be thought to bear on independence.

* Confirm in the letter that, in its professional judgment, it is independent of the company within the meaning of the securities acts.

* Discuss its independence with the audit committee. The statement is effective for audits of companies with fiscal years ending after July 15, 1999, with earlier application encouraged. The SECPS plans to issue implementation guidance to its members.

What it means

"This is not a recommendation," cautioned ISB director Susan McGrath in an interview with the Journal. …

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