SEC chairman Arthur Levitt wants auditing to renew itself as the cornerstone of independence, but he 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 accountancy firms, and personal and financial relationships. On the first, he recognises that 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 accountancy firms face; the need in the consulting world for alliances and joint ventures with third parties who may be audit clients: and the need to raise substantial capital sums to invest in and develop these consulting businesses.
On the second, he recognises the need to modernise arcane rules that force families to make life-changing decisions about careers and locations that are not justified by any public 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 earlier in the year. 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 the most significant structural change in the profession in memory. We believe our proposed restructuring will address many of his concerns and will effectively close the gap between ‘independence in fact’ and ‘independence in appearance’.