Auditors should audit. It’s that simple.

Among Wednesday’s speakers at the Securities and Exchange hearings on auditor independence was John H. Biggs, Chairman, President, and CEO of TIAA-CREF, the Teachers Insurance and Annuity Association and College Retirement Equities Fund.

TIAA-CREF manages $300 billion for its participants and invests $1.5 billion in new fixed income every month and even more in common stock. Biggs told of an incident that occurred several years ago in which his company relied on audited financial statements in making a $12 million investment. Within weeks of the investment, the company declared bankruptcy and it was discovered that due diligence had not been performed during the audit. Biggs did note that this experience occurred in a firm where no management consulting services were offered, but the experience scarred him.

Biggs stated that “a genuine threat to independence emerged from the growth of non-audit management services. Today these consulting services are extremely profitable, growing faster than any other part of the accounting profession.” He indicated he feels there is an inherent conflict when audit professionals perform consulting services and that as a result of firms offering these services, audit partners are required to cross-sell to their audit clients.

The suggestion offered to the SEC by Biggs is this: “Allow the firms to do what they want. Let them pursue their self-interest, as long as they abide by one simple rule: independent public audit forms should not be the auditors of any company for which they simultaneously provide other services. It’s that simple.”

Biggs, indicating his complete support of the proposed auditor independence restrictions, backed off only to the point of stating that if the Commission feels this rule is too draconian, than “at least adopt the narrower set of prohibitions that the proposed ruling describes.”

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