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Restoring the Public Trust

Leslie F. Seidman, CPA

I‘m honored to join The CPA Journal's Editorial Board, and pleased to share my thoughts with the Journal's readers. You might be surprised to know that a hardcore accountant like myself was actually an English major in college—I later went through a special program designed to encourage liberal arts majors to enter the accounting profession. I gravitated toward the “theory” side of the profession, but I've held many roles along the way, including auditor, corporate accountant, litigation consultant, author, standards setter—and now, educator and corporate board director. If that isn't testimony to the versatility of an accounting education, I don't know what is!

Telling the Whole Stoiy

When I finished my maximum term of 10 years at FASB, I had an opportunity to think about what I wanted to do in the next stage of my career. One thing was for sure—I wanted to be a positive influence in the business community, not a critic of other people's work. My strong belief after interacting with regulators, investors, preparers, and auditors over the course of 30 years is that the vast majority of people are trying to do the right thing. So, when I hear about a proposed rule that I don't understand, or I read about a financial reporting problem, I tryto remember: I don't have all the facts. Don't get me wrong—sometimes a rule really does miss the mark, or fraud really has occurred. But it's important to make sure you have the whole story before reaching a conclusion.

I've taken great pride in being an agent for the investing public through my work as an auditor, corporate accountant, and standards setter. I firmly believe that relevant, unbiased financial information helps people decide how to invest capital. The public relies on accountants to “tell it like it is”—not to spin the story to achieve a particular outcome. In my experience, although investors are often indifferent about exactly how information is presented, they care very deeply that the accounts have been prepared and audited by competent, impartial professionals. They trust us to tell them if accounts are not stated properly or if serious questions exist regarding an entity's ability to continue as a going concern.

It's understandable that in response to several significant scandals, frauds, and business failures over the last 20 years, the public lost faith in our profession. As a result, auditing has been the subject of numerous reform initiatives, including the Sarbanes-Oxley Act (SOX) of 2002. Among other things, SOX changed the oversight of auditors of public companies in the United States from self-regulation to governmental regulation, in the form of the PCAOB. The PCAOB has been steadfast in its efforts to improve the quality of audits; strengthen auditor independence; and clarify of the role of auditors through the audit report, internal control report, and other means.

Similar initiatives have been undertaken in other major economies, and the pace of change is not slowing. There are active initiatives about naming the lead audit partner, auditing accounting estimates, using specialists, revisiting going concern, implementing changes to the auditor's report about critical audit estimates, and exploring potential measures and indicators of audit quality.

What's behind these initiatives? Are they intended to address specific audit deficiencies? Are new accounting standards making it harder to audit? Have investors requested this information, and if so, how does it help them make better decisions? The most recent PCAOB report of audit findings shows an increase in audit deficiencies—but are they important and should we be concerned?

At the Crossroad

These are the kinds of questions I'll be asking at the first annual CPA Journal symposium, “Audits atthe Crossroad,” on January 12,2015, in New York City (http://www.nysscpa.org/crossroad). I'll be moderating a discussion among three extremely knowledgeable participants and members of the audience. I'm delighted that Greg Jonas from the PCAOB, Cindy Fornelli from the Center for Audit Quality, and Rita Piazza from Marks Paneth have agreed to participate in this discussion. We're planning to explore the reasoning behind a number of recent initiatives—and discuss how the proposals are expected to achieve those objectives. We'll also talk about the nature and severity of recent inspection and peer review findings, and how audit deficiencies contribute to ongoing negative perceptions of the auditing profession. I think this open dialogue will help all of us understand the context and objectives of these proposals, which will enable us to provide well-informed feedback on the path forward.

I hope you can join usforan interactive, candid, and constructive discussion of current auditing issues, as well as ideas about how we can work together to restore the public's trust.

Editor's Note: In celebration of the 85th Anniversary of The CPA Journal, over the next year, we will feature Guest Editorials from leading experts and industry luminaries in accounting, auditing, and taxation who weigh in on issues of critical importance to our readers and the CPA profession today … as well as in the future.

It is with great pleasure that I introduce Leslie F. Seidman as our December guest columnist. Leslie is the former chair of FASB, a former auditor at Ernst & Young, and former vice president of accounting policy at J.P. Morgan & Co. She is currently the executive director of the Center for Excellence in Financial Reporting at Pace University ‘s Lubin School of Business. She is also a coauthor of the leading book on accounting for financial instruments, a landmark publication of CCH/Aspen (Financial Instruments: A Comprehensive Guide to Accounting and Reporting, 2014). In November, we welcomed Leslie to our distinguished Editorial Board.

Leslie F. Seidman, CPA. Pace University, New York, N.Y.

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