“Auditing: A Profession at Risk,” a new white paper by the U.S. Chamber of Commerce, has asserted that the industry faces significant dangers that threaten its existence and could destabilize the U.S. capital markets and the economy as a whole.
“The auditing profession sits on the razor’s edge,” said Thomas Donohue, president and chief executive officer of the chamber, in a statement. “One excessive court judgment — even if later proven false — could destroy one of the remaining major players in the auditing profession and put our financial markets at risk.”
The Big Eight, as the major audit firms were known as recently as 1989, are now the Big Four: PricewaterhouseCoopers, Deloitte & Touche, Ernst &Young, and KPMG. The last departure from the ranks of majors was by Arthur Andersen, convicted in 2002 for its alleged role in Enron’s demise. The conviction was overturned last year by the Supreme Court, though by that time Andersen was a major audit firm in name only.
“This plan will require a broad-based effort, involving coordinated support among policymakers, Wall Street, the auditing profession, and the broader business community,” the white paper asserted. Its three-part plan: help the profession become insurable; clarify PCAOB standards; and support expansion of and competition among the Big Four firms.
Regarding competition, the chamber asked the Securities and Exchange Commission to reevaluate the Sarbanes-Oxley provision that restricts firms from providing non-audit services to companies they audit. Among other specific recommendations, the chamber wants to:
• Encourage the PCAOB to clearly define the nature and extent of procedures that an auditing firm must employ to detect fraud.
• Better define an auditor’s procedures for fraud detection and the limits of an auditor’s responsibility.
• Clarify Auditing Standard No. 2 (part of Sarbanes-Oxley Section 404) to allow auditors to judge when “enough is enough” with respect to auditing of internal controls.
• Rein in threats of indictments against firms by emphasizing the prosecution of individuals involved in crimes, not entire companies.
• Remove barriers that impede competition among the Big Four accounting firms.