Officials at the Public Company Oversight Board unveiled an aggressive agenda for the coming year that may result in as many as 11 new standards for auditors in areas ranging from corporate fraud detection and reporting, to wrestling with related-party transactions.

The oversight body's new standards-setting priority list was outlined during a meeting last month of the board's Standing Advisory Group - a panel of experts from industry, government, the investment community and the accounting profession created to assist the board in creating new standards for auditors.

The top priority of the PCAOB's standards-setting staff for 2005 will be to hammer out proposed new ground rules governing the ability of accountants to offer tax services to their audit clients.

Although the Sarbanes-Oxley Act permits accounting firms to provide tax services to their audit clients with the approval of the company's audit committee, PCAOB Chairman William McDonough raised serious concerns about this practice earlier this year.

Citing what he called "new concerns" about tax shelter programs being marketed to audit clients, McDonough said that the "extremely aggressive, if not abusive, tax strategies, may, by their nature, impair the objectivity of the auditor."

PCAOB officials said that the board's 12-member standards-setting staff is already at work drafting new standards that would address concerns about auditor independence and tax service.

Other top priorities on the board's agenda for 2005 include the development of proposed new standards with regard to detecting and reporting financial fraud, the relative authority of auditing guidance in the board's interim auditing standards, and communications between auditors and corporate audit committees.

The extensive list of standards planned for development by the PCAOB's fledgling staff raised eyebrows among members of the advisory group, some of whom warned that the board may be biting off more than it can chew.

Although PCAOB officials explained that the board does not necessarily intend to formally propose all 11 standards on the agenda during 2005, one advisory group member cautioned that the list of priorities is "way more than can be done by the staff you have."

Former Securities and Exchange Commission chief accountant Lynn Turner also expressed concerns that the PCAOB was looking at a "full plate" of standard proposals for the coming year, and suggested that the board concentrate instead on a few high-priority issues.

But other advisory group members welcomed the ambitious agenda.

"I encourage the board to be aggressive" in developing standards, and to "have a wide range of projects" under way, Government Accountability Office financial management director Jeffrey Steinhoff said.

Other priorities on the agenda include drafting new audit standards governing such areas as auditing related-party transactions, the consistency of application of generally accepted accounting principles, and auditing fair value measurements and disclosures.

Meanwhile, the accounting board also encouraged auditors to blow the whistle on financial reporting violations by their clients and by their own firms.

During last month's meeting, the SAG queried members on how to best develop "mechanisms that encourage whistle-blowing by members of an audit team who spot financial reporting violations or other types of wrongdoing during an audit."

In a briefing paper, the board suggested that registered firms "could establish appropriate policies and procedures that encourage whistle-blowing - a step designed to ensure that violations of laws, regulations, professional standards and even the firm's own "stated values or code of conduct" are "reported and corrected on a timely basis."

The paper also suggested that accounting firms might take additional steps to encourage whistle-blowing, including the adoption of policies prohibiting retribution or sanctions against complainants. It also called for commitment for a partner or other official to undertake a "thorough investigation of any related complaints and allegations."

Some members of the advisory panel, however, told the PCAOB that the board should do more than simply rely on accounting firms to encourage whistle-blowing within their own ranks.

Virginia-based attorney William M. Diefenderfer III suggested that the PCAOB create a "safety valve" for whistle-blowing accounting professionals by providing "a source for them to go to" if they aren't totally comfortable reporting allegations of wrongdoing to their own firm.

Wayne Kolins, BDO Seidman's national director of assurance, agreed that audit team whistle-blowers should have a resource outside the firm's "operating function" for lodging complaints, and suggested that an outside counsel might serve that purpose.

Ohio Public Employees Retirement System corporate governance officer Cynthia Richson told the PCAOB that the key to encouraging whistle-blowing by auditors was to establish "very strong protections against retaliation" by the firm, and suggested the creation of a three-member mediation panel to handle whistle-blower issues.

Kolins, however, recommended relying on carrots rather than sticks to encourage audit team members to come forward with allegations of wrongdoing. He suggested providing rewards for whistle-blowers as part of the firm's compensation system - an approach that he said has been used at BDO.

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