In this panel discussion, partners are given the opportunity to say what their firms have done and are doing to improve audit quality and thereby quiet the critics. Have they done enough? You be the judge.
In recent years there have been a number of initiatives in response to criticism of the accounting profession for failing to find misstatements resulting from management fraud. Most notable among these have been the reports of the Public Oversight Board (POB) of the SEC Practice Section of the AICPA Division for CPA Firms (SECPS). First there was the POB special report, In the Public Interest-Issues Confronting the Accounting Profession (March 1993), which was followed by Strengthening the Professionalism of the Independent Auditor (September 1994). The latter was the result of the work of a special panel chaired by Donald Kirk mainly in response to remarks made by then SEC Chief Accountant Walter Schuetze that raised questions about auditor independence and professional skepticism. Most recently, the U.S. General Accounting Office is in the final stages of a performance review of the auditing profession in responding to the needs of the public interest. The GAO report is expected to contain a lengthy appendix that includes the recommendations for improving the profession made over the years and the specific initiatives in response thereto.
Many of the recommendations for improving the performance of the profession have been directed to standard-setting bodies, state and Federal regulators, and to self-regulatory institutions. It is a matter of public record how these groups have responded to the recommendations. Not so visible, however, are the responses to the recommendations by those who actually perform the services-the public accounting firms themselves.
In an effort to find out how firms have changed their procedures in response to the various recommendations, managing editor James L. Craig, Jr., led a discussion among partners from seven accounting firms. The principal criteria for inviting the partners to participate was that their firms have a significant audit practice-it is in the audit area that responsiveness to the public interest is paramount.
The panelists are John Barnum, CPA, McGladrey Pullen & Co. LLP; Michael A. Conway, CPA, KPMG Peat Marwick LLP; Robert Herdman, CPA, Ernst & Young LLP; D. Edward Martin, CPA, Richard A. Eisner & Company, LLP; Arthur Siegel, CPA, Price Waterhouse LLP; Raymond Temple, CPA, Rothstein, Kass & Company P.C.; and Leonard Weinstock, CPA, Cornick Garber & Sandler, LLP.
The CPA Journal: Let's begin our discussion by looking at what the POB recommended that firms do to improve the financial reporting process and related audit aspects.
CPAJ: One of the recommendations of the POB is that firms provide some type of mechanism to assure the exercise of professional skepticism on the part of its partners and staff As a real life follow-on to that recommendation, George Diacont, chief accountant of the enforcement division of the SEC, said in an article in the June issue of The CPA Journal there are two fundamental deficiencies that are often present when an auditor's work is called into question- lack of professional skepticism and too easy an acceptance of management's representations.
D. Edward Martin Auditors in general must constantly be on guard against getting too comfortable with a client, and there must surely be those circumstances where it happens. Nonetheless, the accusation that as a profession, we are in bed with our clients or have failed to view transactions in an objective way is vastly overblown. Our firm has not significantly changed its procedures as a result of the POB's recommendations. That is not to say that we don't continually review our audit approaches; we do that on an ongoing basis. And we pay attention to the areas of concern raised when the news of an audit failure is made public or the SEC issues an enforcement release. …