Laura Unger, the acting chairman of the US Securities & Exchange Commission, has said conflicts of interest arising from firms offering both audit and non-audit work are 'greater than regulators suspected'.
A recent SEC analysis showed higher-than-expected payments for non-audit services, with companies paying three times as much for non-audit work as for audit services.
Speaking this week, Unger said the numbers alone did not prove there was a conflict, but acknowledged the SEC was ‘very surprised’ by the results.
She said more time was needed to see how investors reacted to the new information about payments to auditors, but re-affirmed that disclosure of payments was better than a complete ban on firms doing both audit and non-audit work for the same company.
Unger’s comments came just days after Big Five firm Andersen agreed to pay $7m (£4.9m) to the SEC to settle allegations of fraudulent audit work for Waste Management, the largest ever settlement of its kind.
She referred to the case as ‘the smoking gun that everyone was looking for’ following last year’s debate on the SEC’s amended auditor independence rules. Unger said the Andersen case was evidence of the pitfalls that could occur when an auditor provided other services to audit clients.
Last year’s decision by the regulator to tighten rules governing auditor independence was not well received by the Big Five accounting firms, including Andersen. The ‘watered-down’ rules, however, did not include a total ban on audit firms providing other services to audit clients.
Instead they made a requirement for companies to disclose payments for audit and non-audit services in annual proxy reports.
But despite the Andersen penalty and Unger’s interest in the auditor independence issue, the pressure on large firms is likely to drop off when George Bush appoints a full-time chairman. It is thought the Republican lawyer William Pitt is top of the list and Bush, in an effort to appear more ‘business friendly’, is expected to steer him away from audit independence probes.
Moreover, in the next couple of days, all five positions on the commission become vacant and Bush is likely to remould the watchdog to suit his policies.