Big Five maintain pressure on SEC
With just two weeks before the US Securities & Exchange Commission carries out its second public hearing into the revision of auditor independence rules, resistance remains strong.
The forthcoming New York meeting follows July’s Washington hearing where three of the Big Five accountancy firms voiced their concern over SEC chairman Arthur Levitt’s plans.
If the proposals do become rules, many of the larger accounting firms could be forced to separate remaining consulting activities to meet the strict new independence guidelines.
The proposals would, among other things:
- Significantly reduce the number investments in audit clients by audit firm employees and family members linked to the auditor;
- Identify certain non-audit services that, if provided to an audit client, would impair an auditor’s independence;
- Require companies to disclose in their annual statements certain information about non-audit services provided by their auditors during the previous financial year.Harsh picture
During the SEC’s first public hearing, Arthur Levitt, SEC chairman, drew a harsh picture of the situation: ‘In recent years, whole economies around the world have faltered because of lax standards and inadequate attention to the fundamentals of high quality financial reporting.
‘In this country, investors have lost billions of dollars through financial frauds that were driven by an overriding desire to meet the expectations of the short-term at the expense of solid performance over the long term.
‘There is an honest disagreement whether recent developments in the accounting profession merit, warrant modernising the rules, but given what’s ultimately at stake, the confidence of America’s and the world’s investors, surely we can come together in good faith and argue this rule proposal on its merits,’ added Levitt.
Despite major movements in the accountancy profession since the Washington hearings, Big Five opposition remains as strong – if not stronger.
KPMG announced its decision to float its US consultancy arm. The firm, however, denied it was a move geared to acquiescing to SEC demands. It said it would maintain its staunch opposition to the proposals in support of its US branch. And it claimed KMPG bosses would pressurise the SEC by lobbying the UK government and the European Commission.
Life after the divorce
Arthur Andersen, which recently ended a two year arbitration period with its consulting arm, showed it intended to continue the fight by writing to the SEC demanding a ‘thorough examination and cross-examination’ of the plans.
AA – which still offers lucrative consulting services – said its position over auditor independence had not changed following its divorce with Andersen Consulting. However the firm described the issues raised by the SEC as ‘very important’.
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But the most recent attack on the SEC and viewed by many in the profession as a change of heart came from Ernst & Young. Ernst & Young chairman Phil Laskawy rounded on the US regulator this month over its proposals to tighten auditor independence.
Despite offering continued support for rules that provide greater clarity on auditor independence, Laskawy criticised the latest proposals for separating audit and consulting wings as going too far.
E&Y sold its consulting arm earlier this year to Cap Gemini, the French consulting firm, leading to criticism from its Big Five rivals which claimed he was ‘cosying up’ to the SEC in order to gain competitive advantage.
Take it to the top
Deloitte & Touche meanwhile went one a step further.
CEO Jim Copeland recently promised to take the battle over independence rules to the US? highest courts if need be and said it had no immediate plans to sell its consulting arm.
In a bid to fend off similar accusations of violations of audit independence, the English ICA conducted an internal inquiry into its members and member firms. The investigators ruled that the UK regime is effective. It is hoped the English Institute’s results will add weight to the growing opposition in the UK.
The institute is however still in dialogue with the SEC and is unable to comment on its submission.
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Ernst & Young partner joins SEC
Andersens stands firm on SEC audit split
E&Y criticises US regulator proposals
KPMG denies it has caved in to the SEC
English ICA hits back at ‘state run auditor service’
English ICA blasts SEC proposals
Top names unite to slam SEC plans
Andersens hires top lawyer for SEC fight
SEC begins auditor independence consultation
Ex-KPMG chief slams SEC’s Levitt