SEC should look before it leaps

Nobody has a bigger stake in their reputation than auditors themselves. However, despite careful study of his speech, I can’t find any facts demonstrating that these conflicts are real, or of any positive correlation between the diversification of accounting firms and the incidence of audit failures.

Accounting firms have grown into multidisciplinary business advisers through meeting a market need, offering value and excellence to clients and public alike. Shouldn’t we have a lot more in the way of evidence and debate before throwing these benefits away? And it seems strange to propose a new raft of rules before the Independence Standards Board has developed a conceptual framework to build them on.

Hasty rulemaking would likely mean bad rulemaking. As the knowledge-based digital economy develops, so will demands for new corporate reporting. This will make new demands on auditors. How can we decide today what services auditors should and shouldn’t be allowed to perform when we don’t yet know what skills they will need tomorrow? Regulators should be helping auditors move forward into the 21st century, not trying to turn the clock back.

It would be comforting if the problem were purely a domestic US issue. But it’s not. The SEC is in effect a global regulator. Bad rules would hurt business here and in many other countries as much as in the US. And the implications could be severe. What will restrictive practices mean for competition and choice in the market for audits and other professional services?

How will the high quality audit services enjoyed by investors be damaged if firms can’t attract skilled and talented staff? How much will audit costs rise? Growing businesses in the UK have traditionally relied on auditors for a wide range of support and advisory services; will they in future be denied that help?

These questions need discussing and British and European business needs to make its voice heard. The issues are too important to stay silent. The fuller and wider the debate, the more likely it is that any change will be balanced and well-judged.

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