Victor Mature, a staple of many of the “sword and sandal” epics of the 1940s and 1950s, was once turned down for membership in a posh Los Angeles country club. When he inquired as to why, the chairman told him that the club frowned on having actors as members. With perfect deadpan Mature replied, “But I’m no actor, and I have 67 films to prove it!”I sort of know how he felt. By my estimate, I’ve penned nearly 500 accounting-related columns, and yet I don’t think of myself as an expert on the profession as a whole or, for that matter, auditing as a subset — though I’ll admit I’m pleasantly surprised when I’m occasionally asked by readers or attendees at conferences what changes I would make to hone the auditing profession.
Although I do have some ideas, I’ll leave it to the far-brighter minds on the year-old Advisory Committee on the Auditing Profession, formed by the Treasury Department to address competitive and regulatory issues facing the financial markets. Recently, the committee mulled roughly a dozen proposals that ran the gamut from providing more information to shareholders, to measures that would prevent a repeat of the 2002 collapse of Arthur Andersen.
One of the more interesting recommendations put forth by the cadre would require the audit committees of public companies and auditors to provide written explanations whenever a company changes audit firms. The SEC already requires public filers to disclose a change in independent accountant, but what’s not required is the reason why they made the change.
Some members of the panel believed that fuller disclosure would go far toward expanding public confidence in auditing. Others expressed doubts about how that degree of disclosure would aid the investing public, and worried that it might, in fact, make it harder for companies to dismiss their auditors. That, ironically, would serve only to stifle competition, detractors say.
One idea, which appears a no-brainer, is to require all public companies to have their shareholders vote to approve the outside auditor, a practice that is reportedly now employed by between 70 percent and 80 percent of larger public entities.
Other ideas floated by the committee called for the addition of independent “outsiders” to company boards, as well as a proposal where the SEC would be granted the authority to act as trustee for a collapsing firm, freeing it to resolve legal issues. Committee member and former Federal Reserve Chairman Paul Volcker opined that if Andersen had such a strategy in place when it was going down in flames, it would have been saved. With all due respect, I don’t necessarily share that opinion. Not when hundreds of clients were fleeing on a daily basis, and several papers here in New York regularly featured “Andersen Death Watch” graphics. I doubt anything short of a presidential pardon or papal extreme unction would have helped at that point.
Nevertheless, final recommendations from the panel are scheduled to be released sometime this summer.
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