At Congressional hearings on March 19, 2002, Charles A. Bowsher, the chairman of the accounting profession's Public Oversight Board (POB), and Aulana Peters, a POB member and former Commissioner of the Securities and Exchange Commission (SEC), asked Congress to create an Independent Institute of Accountancy (IIA). Chairman Bowsher is a former U.S. comptroller general and head of Congress' General Accounting Office. His testimony is expected to carry considerable weight with Congress.
Oversight of the whole "alphabet soup"
The POB is asking Congress to center all regulations under the auspices of the IIA. This would include oversight for the entire "alphabet soup" of accounting and auditing standard-setters. The POB believes this action is necessary despite a proposal released the day before by the trustees who oversee the Financial Accounting Standards Board (FASB).
The Institute would be funded by mandatory fees, rather than voluntary contributions, and its trustees would be independent of the accounting profession. In addition to setting U.S. standards, the Institute would also be charged with international liaison and overseeing continued professional education for those in the profession. It would also provide annual inspections of accounting firms. An Office of Enforcement and Discipline would have full authority to investigate allegations of wrong-doing by accounting firms and their personnel.
Why a new Institute is needed
In explaining why the IIA is needed, Chairman Bowsher cited a series of events that frustrated the POB in its ability to carry out its responsibilities to serve the public interest. He said the American Institute of CPAs (AICPA) had cut off the funding for special reviews of the independence of accounting firms, and the Big Five firms had engaged in a series of delaying tactics that made it impossible for POB to complete the reviews.
Chairman Bowsher also described the obstructionist roles of the AICPA and the Big Five in difficult negotiations that delayed for more than a year the effectiveness of a new charter recommended by the Panel on Audit Effectiveness. The panel had been created by the POB at the request of the SEC. He said these events contributed to the Board's decision in January 2002 to close its doors.
Ms. Peters stressed that the crisis precipitated by the Enron scandal and other events has created an environment of urgency. "The current state of affairs requires the change to be radical and immediate," she said. Her testimony included an account of how the Public Oversight Board agreed to close its doors by the end of March 2002 after it learned the AICPA had formed a working group to formulate a proposal for a new self-regulatory structure. AICPA's proposal was submitted to the SEC a week before SEC Chairman Harvey Pitt publicly announced his proposal for a public accountability board. POB's decision reflected a realization that its relevancy and authority had been undercut by the facts it was not included in AICPA's working group, advised of the group's progress or consulted by the SEC prior to the announcement of a new board.
Read the prepared testimony of Chairman Bowsher and Ms. Peters and view the hearing.