SEC and Accountants Cut a Deal on Audit Rules

By Levinsohn, Alan | Strategic Finance, December 2000 | Go to article overview

SEC and Accountants Cut a Deal on Audit Rules


Levinsohn, Alan, Strategic Finance


THE SECURITIES & Exchange Commission and the accounting industry struck an agreement last month that lets accounting firms continue selling consulting services to audit clients. The deal ends a five-month battle over proposed SEC rules intended to help ensure that the integrity of independent audits isn't compromised (see Strategic Finance, August 2000, p. 74).

In one of the nastiest regulatory fights in years, the accounting industry--with primary opposition from Andersen Consulting, Deloitte & Touche, and KPMG--had enlisted the support of several members of Congress prior to the election, hoping to delay any SEC action until next year when a GOP Congress, perhaps with George W. Bush as President, could force the SEC to back down. But GOP losses on Nov. 7 and the ambiguous Presidential outcome made that strategy dicey. Without a deal, the accountants knew the SEC would impose its original plan to ban auditors from installing IT systems for clients, So, alter the election, they came back to the negotiating table and cut a deal.

Overall, the new rules are weaker than what the SEC originally sought. But because they put the burden of proof on corporate management and audit committees to attest that their audit wasn't "impaired" in appearance or fact by a broader relationship with their accounting firm, the SEC got what it wanted.

Under the new rules, which are expected to take effect no sooner than January 2001, accounting firms may continue to design and install information systems for their audit clients, the most lucrative of accounting firms' services and, they argued, a key to developing the expertise needed to audit "New Economy" companies. Company management, however, must have operating control over the systems. Another part of the pact lets an auditing firm still do its client's internal auditing, although this is capped at 40% of the time the internal audit takes. Management must lead and make all decisions about the internal audit.

Companies must disclose in their annual proxy statements total fees incurred for auditing, technology, consulting, and other services their auditing firm provides during the fiscal year. In addition, audit committees must certify in the proxy that buying multiple services from the same firm did not compromise the independence of their external audit.

"Fair Disclosure" Coping Tactics

Corporate communications about financial results last quarter were unlike any in recent memory. Companies had to adjust their communications activities to comply with the SEC's new Regulation FD, or Fair Disclosure, which went into effect October 23 (see Strategic Finance. September 2000, P. 87).

The new ruling essentially says no one may be privy to information when others aren't. For starters, that means no more giving "whisper numbers"--advance earnings data--to select securities analysts. Gone, too, are exclusive one-on-one meetings with analysts. Wall Street has literally treasured those meetings. Analysts gleaned nonpublic information, which went into their firm's reports to clients. Without that private give-and-take with management, there's now more pressure on what had traditionally been a closed conference call with analysts to discuss quarterly results. Companies are now trying different ways to make those conference calls public. But like most new things, unforeseen situations do arise.

During Dial Corporation's third-quarter conference call, company officials were asked some basic questions--such as information about payables. Dial's CFO. Conrad A. Conrad, didn't have the data in front of him. In the past, Conrad said he would have "just called back the analyst and told him the number." This time, though, Dial felt compelled to file an 8-K disclosure statement with the SEC that afternoon to answer the questions publicly.

In its 3Q conference call, executives of Nu Skin Enterprises, a direct marketer of personal-care products, were also asked questions they couldn't answer immediately. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

SEC and Accountants Cut a Deal on Audit Rules
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Author Advanced search

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.