Symposium Explores Independence Issues

January 1999 Issue
Symposium Explores Independence Issues
Regulators and Profession's Leaders Share Views
By Danielle D'Angelo
In an effort to shed light on the growing controversy concerning independence issues in public accounting, the NYSSCPA and The CPA Journal sponsored a December symposium, "Auditor Independence: Illusion or Reality?"
As the opening speaker, Securities and Exchange Commission Director of Enforcement Richard Walker pointed to a number of independence issues that he feels warrant closer study. While clearly stating that his views do not necessarily reflect those of the SEC, Walker echoed recent criticism from SEC Chairman Arthur Levitt that increasing competition and the expansion of practice areas in accounting firms often has resulted in less stringent audit standards for clients to which CPA firms provide lucrative consulting engagements. Walker also stressed that auditor independence plays an important role in the protection of capital markets.
"Investors know they can trust our auditors because they are--and of equal importance--they appear to be independent," he said. "It's not enough that audit quality is maintained and the numbers are right. It's also necessary the public investors--the users of financial reports--perceive that numbers are right."
In recent months, CPAs' independence has come under greater scrutiny from the SEC, most notably Chairman Levitt's criticism of the growing practice of "earnings management" (see related articles in October's The Trusted Professional and December's The CPA Journal). As a result, a number of new initiatives have been introduced by various regulatory and professional groups to address the SEC's concerns.
William Allen, chair of the Independence Standards Board that was created jointly by the AICPA and the SEC to address independence, provided an update on the ISB's efforts. Among the issues the board is studying are corporate governance, including a recent exposure draft requiring auditors to meet annually with audit committees specifically to discuss independence (see related article in the December issue of The Trusted Professional); family relationships at public companies; possible restrictions for auditors on accepting employment at companies they previously audited; and alternative practice structures of CPA firms where a public company has ownership arrangements in an accounting firm.
Allen also commented on the different approaches to independence sometimes apparent among ISB members. The board is comprised of four representatives from the CPA profession and four public members.
"The SEC and the AICPA have a common mission but not altogether a common perspective," Allen said. "The SEC sees new threats in independence where the AICPA views the system as arcane and complex, and wants to bring a principle-based analysis to independence."
As follow-up during a subsequent panel discussion, Arthur Siegel, ISB executive director, said the board is working on such a principle-based analysis in its conceptual framework project. He pointed out that a clear definition of auditor independence does not exist, and said the project will address this and related issues over the next two years. The ISB will hold public discussion forums and release an exposure draft before reaching final conclusions.
"We hope the project will serve the same purpose as the accounting conceptual framework does for the FASB," Siegel said.
In an effort to examine independence from all fronts, the half-day symposium also featured other regulators and representatives from the Public Oversight Board, AICPA, industry, public accounting, plaintiffs' bar, and the investing community. The audience, which included representatives from the State Board for Public Accountancy, the State Education Department, and other leaders in the profession, also had an opportunity to participate.
Among the panelists were Scott Bayless, SEC associate chief accountant; Daniel Berger, a plaintiff's attorney with Bernstein, Litowitz, Berger & Grossman LLP; James Cochrane, senior vice president of the New York Stock Exchange; Robert Elliott (Westchester), AICPA vice chair; Sally Hoffman (Westchester), member of the Auditing Standards Board and the AICPA Professional Ethics Executive Committee; A.A. Sommers, Jr., POB chair; Jerry White, representing the Association for Investment Management and Research; and John Wulff, vice president and chief financial officer of Union Carbide Corporation. Gary Previts of Case Western Reserve moderated, and NYSSCPA President George Foundotos (Suffolk) and Executive Director Louis Grumet provided commentary.
Attendees and speakers alike praised the symposium for offering an open forum on pertinent issues.
"Our hosts, The CPA Journal and the New York State Society of CPAs in particular, have taken a leading role in providing a forum for discussion of different views on independence requirements and how to maintain them in a changing profession," Walker said. "This kind of informed discussion by leaders of the profession will facilitate responsible solutions to these issues."
For more coverage on the symposium, see the March issue of The CPA Journal. *

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