Arthur Levitt has blamed standard setters and regulators for being ‘inapt’ during the credit crunch.

In an interview with Dutch magazine de Accountant, the former Securities Exchange Commission chairman said that the ‘usual number of people’ saw the danger of the credit crunch ahead of time.

‘But the leverage of power remained with the Federal Reserve Board, the SEC and the Treasury. And with the standard setters that were so inapt they allowed mechanisms to develop that enabled businesses to disguise their true financial condition. So the failures were pretty broadly distributed. But the oversight is a function, in my judgement, in an administration and a congress that was committed to deregulation at any cost,’ said Levitt.

Levitt is senior adviser to the Carlyle Group and chairs the US Treasury’s advisory committee on the audit profession.

The group began deliberations last year following a similar consultation in the UK on the choice and concentration of the audit market.

The UK has followed the route of creating conditions which will allow firms in the mid-tier to flourish. The US process has produced powerful proposals to help manage a large firm on the verge of collapse, and also insists auditors have a back-up plan if things go wrong.

But Levitt has taken this a step further, suggesting that the market has room for an ‘audit only’ firm.

‘The profession is better managed today than ever before. But once again, this is a moving target. The firms are aggressively getting back into consulting services. I think there is a role for an audit only firm. We don’t see them, but I think it would be very helpful to have a firm which just did audits.

‘We also need greater transparency, to understand what condition a firm is in.

We need the firms to provide fully documented audits of their own operation. They don’t do it at the present time, but I think that clearly is coming,’ Levitt said.

The US Treasury Committee suggests a custodial arrangement if a major firm gets into trouble.

‘The PCAOB will have the ability to take it over and, almost in a bankruptcy mode, run the firm in an orderly way. With respect to the failure of an accounting firm this is probably the most significant recommendation that will come out of this,’ said Levitt.