Also, large accounting firms have grown even larger and much more diversified as they’ve sought to provide an array of technical assistance to business firms across the economic spectrum
It’s critical that the audits of business financial statements not only be independent but be perceived as independent by the investing public. Perception and reality must be the same for confidence in our financial system to be maximized and allow the economy to reach its full potential.
Over the years, changes in technology and the work place environment have made it possible for individuals to vastly expand their investment options as well as pursue job opportunities throughout the economy the weblink at all possible levels.
While much of this trend, especially in the area of worker and investor opportunities, is obviously good, the growing complexity of financial and economic relationships and the extent of non-audit services provided to audit clients by the major accounting firms have significantly increased the perception and the potential for conflicts ofinterest and threatens the integrity of the independent audit function.
Now, one of the measures to deal with this problem was the establishment of the Independence Standards Board of which I’m a member by the SEC and the AICPA in 1997. The purpose was to create an institution that would modernize and streamline a series of old rules and guidelines with new principle-based standards for the determination of auditor independence.
Chairman Allen has described the efforts of the ISB, so I won’t repeat them here except to say that considerable progress has been made in addressing many of the problem areas we’re all concerned with.
Now let me endorse what the Chairman and I think most of my other colleagues have said and are going to say here. I’m pleased that the SEC, in it proposed rule-making, has adopted the approach followed by the ISB in its deliberations on employment with audit clients, family relationships and financial interest.
However, I do not see the need to develop separately from the ISB a completely different set of guidance and definitions that support such similar rules in these particular areas.
The ISB has developed a deep infrastructure to deal with the details of guidance and implementation which we think can be relied upon by the SEC. I thought it was useful to hear the Chairman’s interest in this.
But I think overall it’s hard to really see substantive differences in these points of detail, so I think it makes a lot of sense to adopt what the ISB has worked very hard on and has brought a lot of expertise together to put together.
I think that, again, in some cases, the ISB is a little more stringent on these details, and, in some cases, the SEC is
MR. DENHAM: Mr. Chairman and Commissioners, I appreciate the opportunity to testify. My background is as a practicing lawyer for most of my clear in private practice. For a time, I was general counsel of a large and complex public company.
I had internal audit reporting to me in that role, an internal audit group of about 100 auditors, so I know a little something about internal audit. I’ve been CEO and chairman of a large and complex public company as well.
I first want to express my agreement with the points of view put forth by Chairman Allen with maybe one or two nuances that I’ll spend most of my time focusing on.
The disclosure proposals relative to disclosing the non-audit service fees I think that’s a very good idea. I commend you for putting that forward.