The Treasury Department's Advisory Committee on the Auditing Profession has approved and adopted a final report with recommendations on how to improve the sustainability of the profession, but not without some dissension.
The committee approved the report by a roll call vote of 14-1, with a dissenting vote cast by Lynn Turner, a former chief accountant of the Securities and Exchange Commission. He did not specify why he voted against the report and did not respond to a request for comment on the report.
The latest draft of the final report said, "All of the committee members voted to issue the committee report," but then added parenthetically, "We may need to amend this sentence if one or more committee members do not support this report." A final version of the report will be posted to the committee's Web site this week.
Robert Glauber, chair of the Subcommittee on Firm Structure and Finances, said his group could not reach a consensus on the section of the report on catastrophic liability risks, so it instead consists of bullet points expressing various views from auditors and investors.
"The firms felt that the threat to the profession coming from catastrophic liability could kill one of the [Big Four] firms," said committee co-chair and former SEC Chairman Arthur Levitt (pictured). "Part of the dialogue involved this threat of litigation."
"It would be hard to see one of the big firms disappear," said the other committee co-chair, Don Nicolaisen, another former chief accountant of the SEC. "It's important that the regulator be aware of those risks."
Other changes in the final report include further recommendations for improving the representation of minorities at auditing firms, with "several significant actions including historically black colleges and universities," according to Gary Previts, chair of the Subcommittee on Human Capital.
"The firms cited that over and over again," said Levitt. "The firms have that as a very important priority."
The Subcommittee on Concentration and Competition also added some language addressing how predecessor and successor audit firms relate to each other in the change of auditors to ensure that there are not inappropriate costs or barriers placed on companies changing auditors.
The Center for Audit Quality praised the committee for its work and said it particularly supports the recommendation for creating a National Center for Fraud Prevention and Detection. Treasury Secretary Henry Paulson also took time out from his intense negotiations with Congress over the financial bailout package to praise the committee's work. "Their work will contribute to and shape the necessary work of encouraging investor confidence in our financial markets," he said.
The Public Company Accounting Oversight Board welcomed the Treasury report and said it would carefully consider its "recommendations that may have an impact upon the board's oversight of the auditors of U.S. public companies."
The recommendations in the report focused on three specific areas: improving accounting education and strengthening human capital; enhancing auditing firm governance, transparency, responsibility, communications and audit quality; and increasing audit market competition and auditor choice.
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