Tougher oversight for US firms

The US Securities and Exchange Commission is considering setting up a new, independent regulatory system for the US accounting profession. It says that it needs to do something to prevent the potential loss of confidence in the audit process caused by a string of corporate collapses including Enron.

'We cannot afford a system that facilitates failure rather than success,' SEC chairman Harvey Pitt said last month. 'Accounting firms have important public responsibilities. We have had far too many financial and accounting failures. The Commission…will not tolerate this pattern of growing restatements, audit failures, corporate failures and investor losses.'

He wanted to see in place, he said, 'a tough, no-nonsense, fully transparent disciplinary system, subject to independent leadership', and regular monitoring of the ways in which accounting firms perform their responsibilities.

The SEC's ideas are still in their infancy but from the few details Pitt revealed, it seems that he has in mind a system that borrows heavily from the UK's own regulatory scheme. A new 'oversight' board, which would be a private sector body dominated by members from outside the profession, would have two primary responsibilities - discipline and quality control - which would be carried out through two other bodies.

While the SEC would continue to pursue breaches of the law, the disciplinary body would investigate violations of ethical and competence standards. It would also have the power to bring proceedings, publicise the results, and restrict both individuals and firms from auditing public companies.

The quality control body would have a permanent team of staff, which would carry out an as yet undecided review procedure on firms. Pitt said that the current peer review process needed radical reform and that the process that replaced it would substitute the triennial firm-on-firm peer review with more frequent monitoring of audit quality and competence.

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