November 1999

ISB Issues Discussion Memo on Firm Structures

The Independence Standards Board has issued a discussion memorandum, DM 99-2--Evolving Forms of Firm Structure and Organization, for public comments due December 31. The many services provided by CPA firms and new firm structures has caused the Securities and Exchange Commission and others to raise their concerns about auditor independence.

The mission of the ISB, created by the SEC and the accounting profession, is to develop guidelines to ensure the independence of auditors of public companies. The board deals with related topics such as family relationships and employment with clients, among many others. A number of CPAs consider firm structures to be one of the ISB's hottest issues--particularly since the profession as a whole is addressing it on several fronts. The AICPA, the National Association of States Boards of Accountancy, and the NYSSCPA also are grappling with this issue for auditors of nonpublic companies.

DM 99-2, more than 40 pages long, gives a thorough description of the various structures existing today. It describes the many services provided by CPA firms as well as possible risks and safeguards to independence. The memorandum poses 27 questions for comment by interested parties.

"This discussion memorandum considers the dramatic changes occurring in the structure of the accounting profession," ISB Chair William T. Allen said. "These changes could have significant implications for auditor independence and the perception of such independence. The new practice structures that are evolving before our eyes were not contemplated when the existing auditor independence rules were developed.

"The ISB is committed to thorough and timely study and action on these issues. The quality of our work, however, will ultimately depend to some extent on the willingness of investor groups and others to spend the time and thought necessary to offer advice and guidance to the board in its public process."

See http://www.nysscpa.org and the ISB website, http://www.cpaindependence.org, for a copy of DM 99-2. Watch these sites and The Trusted Professional for updates. *