Recent Actions by Companies

Global companies and accounting firms have already taken the initiative on the two issues that have most captured the world’s attention -- the perception that non-audit services can impair auditor independence and the debate over how best to achieve quality control and disciplinary oversight of the accounting profession.

• Auditor independence. On February 1, consumer foods giant Unilever and CGNU, the UK’s largest life assurance company, announced plans to bar their auditors from providing consulting services. Entertainment giant Walt Disney Company made a similar announcement last week. These actions came at the same time as, or shortly after, four of the Big Five firms announced they now support bans on certain consulting services, (i.e., services related to computer systems and internal auditing). It all happened before U.S. lawmakers had a chance to debate the issue of non-audit services.
• Oversight. Despite urging by the Securities and Exchange Commission (SEC) to reconsider, the Public Oversight Board has reaffirmed its intention to close its doors by March 31, 2002. Arthur Andersen, Enron’s auditor, has decided to forge ahead with its own independent oversight board chaired by former Federal Reserve Board Chairman Paul Volcker. “I think you’re going to see a fundamental restructuring of the accounting industry in the United States,” said Joseph Berardino, Andersen’s CEO. “We expect to be ahead of the curve.” Andersen also announced it is joining PricewaterhouseCoopers, KPMG, and Ernst & Young in voluntarily limiting the consulting services provided to audit clients.

Reactions from Lawmakers and Regulators

U.S. lawmakers are expected to propose a variety of bills to address the issues of auditor independence and oversight. Some go beyond the actions taken to date and the initial oversight proposal put forth by SEC Chairman Harvey Pitt. Chairman Pitt said the proposal was simply a way to open a dialogue on the subject. Congressman John LaFalce responded to the proposal by calling instead for a major increase in government resources for oversight and enforcement.

In addition to audit reforms, the Enron fallout has included calls for faster action by accounting standard-setters, a call with the Financial Accounting Standards Board (FASB) appears to be heeding. FASB said it plans to propose new rules on off-balance sheet financing by June. But even that may not be fast enough for SEC Chairman Pitt, who has said, “I want the SEC to be able to say we need guidance on these issues and we want it within 60 to 90 days.”

The Roadmap to Reform

This past week's developments culminate an intense period of mounting pressures and progress in the accounting profession.

Accounting reforms: The story so far

-Rosemary Schlank