The Levitt committee just completed its third round of talks around
reformation of the US audit market.
The committee, led by former Securities and Exchange Commission chairman
Arthur Levitt, considered 17 reports by different figures in the industry,
ranging from regulators and academics to practitioners and firm heads.
Among those who commented in panels was the UK’s Richard Fleck, the chairman
of the Auditing Practices Board, who told the US Treasury committee that
financial statements are likely to decline in importance and so impact on the
value of the auditor’s report.
Fleck said further that while annual financial statements are an important
source of information to investors, their relative importance has probably
declined during the last twenty years.
‘… and will probably continue to decline in the next twenty. The value of the
auditor’s report can not be higher than the financial statements themselves,’
Fleck was speaking on a panel discussing issues relating to the structure and
finances of accounting firms.
Fleck also told the panel, chaired by former Securities and Exchange
Commission chairman Arthur Levitt that auditors needed to ‘increase the
relevance of their work to the financial community’.
Fleck made the point in discussions around the long term sustainability of
‘I believe the quality of the staff available to audit firms can only be
maintained or enhanced if auditors increase the relevance of their work to the
financial community,’ he said.
Other commentators, such as the US Centre for Audit Quality’s Cynthia
Fornelli called on the committee to dedicate funds and people to work with
accounting professors ‘to ensure that the curriculum is keeping pace with
developments in business transactions, international economics and financial
‘Areas of specific attention include the persistent need to impart high
ethical standards and the evolving need for instruction on international
accounting and auditing standards… to prepare current and future auditors for
any transition to international accounting and auditing standards is important
to the stability of our markets,’ she said.
The CAQ also called for the establishment of a ‘professional judgment rule’.
‘A well-crafted professional judgment rule would benefit investors, auditors
and issuers. By adopting such a rule, the SEC would formally recognize the
essential role of good-faith professional judgment in the financial reporting
and audit processes,’ Fornelli said.
Grant Thornton International’s chairman, Edward Nusbaum, called for the
committee to consider comprehensive disclosures about reasons for auditor
switches, restrictive contracts with underwriters, and audit committees’
processes for choosing, evaluating and compensating the auditor.
‘Such transparency would create incentives for audit committees to optimize
their auditor choice and help clarify that size is not always the best criterion
when selecting an auditor. Removal of entry barriers by reducing unnecessary
complexity of global regulation and financial reporting standards,’ he said.
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