April 2000

POB Audit Effectiveness Report Delayed

Proposal Would Globalize Accounting Profession

The Public Oversight Board's Panel on Audit Effectiveness will issue its draft report in April or May, according to David Pearson, director of the panel's staff. Panel Chair Shawn O'Malley had stated at the NYSSCPA's Auditing Conference in January that the panel planned to issue its initial report in February or March.

Pearson said the delay is necessary because of the magnitude of the material generated during the panel's investigative work. He also said that after the panel releases the draft report for comments it will hold public hearings that will address a wide range of subjects of concern to various constituencies.

POB created the panel in October 1998 at the request of Securities and Exchange Commission Chair Arthur Levitt as part of his broad initiative to encourage corporations, the accounting profession, and the securities industry to address what he terms earnings management. POB oversees the self-regulatory functions of the AICPA's SEC Practice Section.

The panel reviewed CPA firm policies for hiring, promoting, and rewarding auditors; studied firm methodologies for performing audits; conducted expanded peer reviews of audit workpapers; held public hearings and focus groups of auditors and those audited; and solicited information about audit problem areas using a comprehensive questionnaire. The panel also examined the structure and effectiveness of various standards setters including the Financial Accounting Standards Board, AICPA's Accounting Standards Executive Committee and Auditing Standards Board, Securities and Exchange Commission, and Independence Standards Board.

The report will include recommendations to the AICPA, SEC, and auditing firms. Pearson noted that although the panel is still deliberating some of its recommendations, it is clear that the report will deal at length with the "people side" of the audit equation. In January, O'Malley said that one of the recommendations may be that the SEC Practice Section modify its peer review procedures along the lines of the enhanced methods the panel's staff used to examine current audit practices. *