Some of the largest accountancy firms in the US are upset after the US Securities & Exchange Commission announced it would be sending letters to thousands of firms prescribing strict guidelines for ensuring auditor independence.
SEC chairman Arthur Levitt said yesterday that the letters would be sent out within the week to the audit committees of ‘several thousand US companies and others with shares quoted in the US’.
The letters will give guidelines with which audit committees can judge whether to allow consultancy and audit work to take place at their company. Some of these include the level of consultancy fee and the sort of financial information auditors and consultants are allowed to handle, the Financial Times reported today.
Accountancy firms have complained to the SEC that the guidelines set out in the letters go beyond agreed rules, and feel they could jeopardise the work being carried out by firms who act as both auditors and consultants to the same company.
On Tuesday this week, the European Federation of Accountants and Auditors added fuel to the debate by claiming no universal definition of auditor independence could be compiled, nor is it possible for auditors to exercise completely independent judgement when compiling financial statements.
The EFAA report proposed a set of core principles, to limit the duties and responsibilities of auditors, including excluding them from all decision making on behalf of the client.
Last month the SEC announced revised rules to substantially limit the amount of consultancy work, particularly in IT, large accountancy firms can offer their audit clients.
But, they do not prohibit firms from offering a number of non-audit services, which many firms maintain would strangle their ability to compete with other industries.
The scaled down rules were seen as a partial victory for Levitt, substantially changing rules governing the profession, but not prohibiting firms from continuing to develop and offer non-audit services provided the firms’ management team informs its audit committee. Big Five firm PwC backed the final set of rules.
In November PwC failed to agree the sale of its consulting arm to IT company Hewlett Packard, following Ernst & Young sale of its consultancy practice to Cap Gemini in April.
Links
Total independence a dream says EFAA
SEC releases finalised independence rules
EC pushes for stronger audit controls