If further evidence was needed that capital markets are global, and global largely means American, the level of interest here in a speech given in the US by the SEC chairman to a US audience must surely have provided it.
SEC chairman Arthur Levitt wants auditing to renew itself as the cornerstone of independence, but recognises the impact of change: change in the financial marketplace; the growth in consulting and other services; and in particular the growth in dual-career families.
He focused on two aspects of independence: scope of service provided by firms, and personal and financial relationships. On the first, he recognises the growth of consultancy and other services has had no adverse impact on audit integrity, but argues perception is everything. He recognises the business challenges firms face; the need in the consulting world for alliances and joint ventures with third parties who may be clients: and the need to raise substantial capital to invest in these businesses.
On the second, he recognises the need to modernise arcane rules that force families to make life-changing decisions that are not justified by any benefits.
We in PricewaterhouseCoopers are pleased with the SEC’s recognition of our integrity on scope of service, and of the business pressures on our consulting practices. It was these pressures that led us to announce our plans for the separation of our consulting businesses. And we are delighted to see proposals to modernise rules on personal and financial relationships.
Levitt asks whether additional rules are needed to limit ‘the types of services that an audit firm can render to a public company client’. He seems to come down in favour of some further rules, coupled with UK-style disclosure of non-audit fees.
Our view is simple: the plans already announced by three of the largest firms for separation of their consulting practices represent a very significant structural change in the profession. We believe our proposed restructuring will address many concerns and will effectively close the gap between ‘independence in fact’ and ‘independence in appearance’.
– Peter Hazell is UK managing partner of PwC.