Washington (Jan. 7, 2003) -- Three former Securities and Exchange Commission chief accountants penned a strongly-worded letter to the new public accounting oversight board that urges the board to crack down on the profession, and establish auditing standards itself.
In a three-page letter dated Dec. 31, 2002, a copy of which was provided to the Electronic Accountant, the former SEC chiefs claim auditor independence has become dangerously suspect, and that the profession has blithely dismissed a series of scandals as aberrations that did not warrant any fundamental change.
"Failures in our financial reporting system are more than aberrations," wrote Lynn Turner, Walter Schuetze and Michael H. Sutton. "They seriously undermine the confidence of investors and the public in the institutions that are supposed to protect them. They ‘poison the well.’"
Among the SEC chiefs’ recommendations to restore investor confidence is to for the board to take back standard-setting from auditors and perform that function itself, claiming that well-intentioned auditors were beset by "the inherent conflicts between protecting the auditing firms’ interests and those of the investing public, resulting in standards tilted to favor the interests of auditors."
The American Institute of CPAs has vocally opposed delegating standard-setting to outsiders, likening the practice to allowing a doctor who hasn’t been in an operating room for years to perform open heart surgery.
The group also wants the PCAOB to establish clearly delineated auditor independence guidelines and to prohibit any service that even gives the appearance of conflict of interest. Finally, the group wants the board to put into place a system to oversee the profession and make sure everything possible is being done to prevent future financial reporting failures.
"If the efforts of the PCAOB fall short, and if the investing public continues to receive and rely on financial statements that fail to present fair and accurate information, the result for our capital markets and investors will continue to be devastating," they wrote.
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