Academic journal article Journal of Accountancy

The SEC's Proposed Auditor Rule Threatens Our Profession and the Public

Academic journal article Journal of Accountancy

The SEC's Proposed Auditor Rule Threatens Our Profession and the Public

Article excerpt

THE SEC's PROPOSED AUDITOR RULE THREATENS OUR PROFESSION AND THE PUBLIC

As you probably are aware, a current flurry of activity at the SEC could force sudden and major changes in the fundamental relationship between accountants and their clients.

To reform the way in which independent audits are conducted, the SEC proposed new rules governing auditor independence. Fewer than four weeks remain in the 75-day comment period the SEC allotted for the proposal, which, among other things, would prohibit firms from rendering nonaudit services to their audit clients.

This would force some clients to dismiss CPA firms with which they are otherwise satisfied in order to meet the new regulatory requirements.

Because of the sweeping nature of the SEC proposal, it could affect the way firms of any size--not just those that audit SEC registrants--provide almost any nonaudit services, including accounting, financial information systems design and implementation, valuation, management, consulting and outsourced internal auditing, as well as actuarial, human resources, financial planning, investment, legal and expert-witness services.

The SEC proposal also would restrict accounting firms' entry into joint ventures, partnerships and multidisciplinary practices and limit the circumstances under which CPAs can represent their clients before the IRS. In addition, it could affect the way in which firm associations serve their members.

Released at the end of June, the proposed rules address two complex, disparate topics--auditors' financial interests in their clients and audit firms' provision of nonaudit services--that require more analysis than is feasible in the SEC's brief comment period.

The proposal unnecessarily combines the scope of services issue with modernization needed to address important demographic changes. …

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