"Public confidence in independent auditors, which is essential to the success of the Federal securities laws, has been seriously eroded," the Senate subcommittee on accounting and management said...
These words came as a result of mounting accounting failures, including the biggest bankruptcy to date - Penn Central.
That Senate subcommittee report in 1976 recommended the federal government set accounting and auditing standards, bar auditors from consulting for clients and force companies to rotate auditors every three years.
The AICPA responded to the criticism by instituting the Public Oversight Board in 1978, with the intent of self-regulation of the profession.
California Congressman Henry Waxman calls the self-regulatory process "toothless" ...
Concerns included that the POB was funded by the AICPA and had never given a critical review of any audit to date.
Arthur Levitt, then Chairman of the SEC, came back two decades later to reignite the debate calling for reforms of the profession. Intense lobbying ensued and Republican Congressman Billy Tauzin informed Mr. Levitt that if reforms went through that he (Tauzin) and other lawmakers would cut the SEC's budget. Sweeping reforms were halted, and disclosure requirements were put in place.
Now all five of the Big Five accounting firms have announced plans to split their consultancy services in order to maintain an appearance of independence. "Perhaps they think by sacrificing this, they will avoid something more stringent," says long time observer of the profession Baruch Lev, a professor of accounting and finance at New York University's business school.
Will it be enough? Will this quell the concern? Only time will tell.