Financial Executives Review Audit Policies and Ethics

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Phil Livingston, the president and CEO of Financial Executives International (FEI) said in the latest issue of the association's e-newsletter, FEI Express, the FEI has been hearing from its members about the changes in corporate policies that companies are making to improve auditor independence. He encouraged companies to issue press releases indicating the changes they've made. He also asked for input on the FEI's code of ethics. The Chairman of the Securities and Exchange Commission (SEC) has asked FEI to review its code of ethics in light of the Enron collapse.

Changes in Corporate Policies

"Two things are clearly getting play in the field," wrote Mr. Livingston. "First, companies are adopting revolving door policies prohibiting hiring of senior auditor team members. Second, companies are directly addressing the issue of consulting services provided by the auditor."

On the issue of consulting services, Mr. Livingston said some companies are taking the extreme step of prohibiting the auditor from providing non-audit or non-tax services, while others are limiting the total amount of non-audit services to some multiple or factor of audit service fees, such as 1 times the audit fees or 50% of the audit fees. Still others are requiring the audit committee to approve all non-audit services or engagements above some dollar amount.

Mr. Livingston urged companies adopting such policies to put out a press release indicating the changes they've made for two reasons: first, it would help other companies understand what's happening and give them ideas, and second, it would give the market some confidence that financial executives are taking action. "Even if you have an existing policy and no change has been made, consider putting out a release," said Mr. Livingston, "and send FEI a copy."

FEI's Code of Ethics for Financial Executives

As part of an on-going effort to bolster investor confidence, SEC Chairman Harvey L. Pitt has asked the New York Stock Exchange and Nasdaq to review corporate governance and listing standards, including the important issues of officer and director qualifications and the codes of conduct of public companies. He commended Financial Executives International for reemphasizing its members' code of ethics and asked FEI to consider whether there is a need to update the code in light of recent developments.

FEI's code of ethics currently contains these eight principles.

  1. Act with honesty and integrity, avoiding actual or apparent conflicts of interest in personal and professional relationships.
  2. Provide constituents with information that is accurate, complete, objective and relevant.
  3. Comply with rules and regulations of federal, state, provincial, and local governments, and other appropriate private and public regulatory agencies.
  4. Act in good faith, responsibly, with due care, competence and diligence, without misrepresenting material facts or allowing one's better judgment to be subordinated.
  5. Respect the confidentiality of information acquired in the course of one's work except when authorized or otherwise legally obligated to disclose. Confidential information acquired in the course of one's work will not be used for personal advantage.
  6. Share knowledge and maintain skills important and relevant to constituents' needs, including employers, peers and the public.
  7. Be recognized as a responsible partner among peers and in society.

What do you think? Are these principles adequate? If not, what more should be added?

-Rosemary Schlank

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