On January 20, 2002, the Public Oversight Board (POB), the independent body that oversees the self-regulatory function for auditors of companies registered with the Securities & Exchange Commission (SEC), passed a resolution stating its intent to close its doors no later than March 31, 2002.
Precipitated by remarks made just days earlier by SEC Chairman Harvey Pitt, the resolution removes any uncertainty about the Board's future. A letter sent from the POB to Chairman Pitt on January 21, 2002 explained, “The decision was made reluctantly, but members of the Board felt we had no recourse. It was obvious from your remarks at the press conference on January 17th that the proposals for changing the system of self-regulation of the accounting profession do not include a place for the POB.”
"While I'm hopeful the Public Oversight Board will reconsider, if they do not we will go on," Chairman Harvey Pitt is quoted in the press as having told reporters at the 29th annual Securities Regulation Institute on Wednesday. "At the end of the day, we will not allow any gaps in investor protection."
POB's exit leaves a big void . . .
The POB’s decision affects more than 128,000 accounting professionals employed by approximately 1,300 accounting firms that belong to the SEC Practice Section (SECPS) of the American Institute of CPAs (AICPA). Together, these firms audit the 17,000 public companies that file reports with the SEC. Accounting firms that do not audit SEC registrants are members of a separate AICPA practice section and are subject to a separate self-regulatory process.
Current rules of practice set by the SECPS require member firms to adhere to quality control standards established by the AICPA and have a peer review every three years, the results of which are maintained in a public file. These firms are also required to rotate audit partners assigned to clients and perform concurrent (second) partner reviews prior to issuance of an audit report. In addition, they must report all pending litigation that alleges an audit failure to the SECPS Quality Control Inquiry Committee.
In recognition of the weighty responsibilities assigned to the POB, it is comprised of prestigious and well-known leaders of the accounting profession: former U.S. Comptroller General Charles Bowsher (Chairman), former Financial Accounting Standards Board Chairman Donald Kirk, former SEC Commissioner Aulana Peters, former Lockheed Martin CEO Norman R. Augustine, and former TIAA-CREF CEO John Biggs.
. . . and a lot of unanswered questions
The POB's decision leaves many questions unanswered. Members of the Board will meet on January 31, 2002 to make decisions about staff and discuss arrangements for the transition of their responsibilities. It is expected this will involve decisions about the oversight of the SECPS, Auditing Standards Board, Peer Review Committee and Quality Control Inquiry Committee, as well as the transfer of responsibility for monitoring the implementation of the recommendations of the Panel on Audit Effectiveness and conducting the special independence reviews of the Big Five that were agreed to with the SEC in June 2000.