The U.S. Chamber of Commerce's report on the auditing profession is equal parts suggestions for legislative protections and doomsday suppositions for the industry.
Released earlier this week, "Auditing: A Profession at Risk," describes the auditing firms as severely contracted and worries that should one of the Big Four falter, the field could never withstand the hit.
The chamber, which represents 3 million businesses and organizations, points to the Sarbanes-Oxley Act as having been the political determination that auditing is central to public confidence in the country's capital markets. It continues to sum up the climate for auditors as one that is "The target of a difficult litigation and regulatory enforcement environment, where business losses by a client can result in lawsuits, and a single indictment -- even without a conviction -- can result in the destruction of thousands of jobs."
In the wake of KPMG's September settlement with the Securities and Exchange Commission over its sale of supposedly illegal tax shelters, it seemed there wasn't anyone around the accounting profession who didn't begin a conversation with small talk about the case. The report q uotes former Public Company Accounting Oversight Board Chairman William McDonough, who said around that time, "None of us [regulators] has a clue what to do if one of the Big Four failed."
More than one former regulator I spoke with said they couldn't believe that the federal government would have allowed the auditing industry to stand at three firms -- it would have been much more likely, they said, to have the government step in, and instead of a remaining Big Three, to have seen drastic changes leading to the creation of a Big Six, or Big Five.
The chamber proposes three steps to giving some stability to the auditing industry:
- Help the profession become insurable;
- Clarify PCAOB standards; and,
- Support expansion of, and competition among, the Big Four firms.
It's a job easier said than done. Many feel the first step to insuring the profession is setting some liability number on each auditing engagement -- a proposal that has been meet with some disbelief in the smaller-scale world of the United Kingdom, where proposals suggest the shareholders would have to agree to a dollar figure.The chamber also wants clear-cut definitions of the scope for an auditor's work, and suggests the creation of specialized "accounting courts" for civil cases as well as tougher standards for indictment threats against firms.
The report, in discussing the PCAOB's standards, not-so-subtly makes a case that "overauditing" is becoming too regular, and too burdensome, a practice. "The business community is primarily interested in knowing that someone is ultimately responsible for ensuring that the auditor-client relations in health and productive," the report says.
And finally, "just because the task of expanding the Big 4 is difficult does not mean that it is impossible or unimportant," the chamber said in the white paper. The chamber also asks egislators and the SEC to revise rules preventing the Big Four from bidding for audit work when they have performed disqualifying services in prior years.
I t's all suppositions and guesswork in considering the future of the auditing profession at this point, but looking at the way the government handled the KPMG matter seems to show that the feds already realize the work they'd be cutting out for themselves and the disruption they'd cause to the markets, if another large firm was ever eliminated.
For me, I think the only certainties in life will continue to be death and taxes, and the sale of insurance, the loosening of PCAOB standards and supposedly increasing competition, is unlikely to eliminate all uncertainty in a field that will always be about honesty -- a human quality that's tough to mandate.
Register or login for access to this item and much more
All Accounting Today content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access