by: rick telberg
june 22, 2000 (smartpros) ? few accountants are even vaguely aware that the public oversight board exists. if you haven’t heard much about it, don’t be embarrassed. the pob has never done much of note.
the pob is charged with examining the effectiveness of auditing and financial reporting at public companies. but to cpas with consciences, the pob has long been a blot on the profession.
last week, in the first signs that the pob may no longer be a captive of the big five and the american institute of cpas, a pob panel — created at the behest of securities and exchange commission chairman arthur levitt — conceded that corporate america’s penchant for so-called earnings management had gone too far. the panel said a “trickle” could easily become a “waterfall.” and the panel called on auditors to toughen up their audits.
the pob panel on audit effectiveness says in its draft report that auditors should probe behind the numbers provided by management in “every” audit to increase the chances of catching financial statement fraud.
as if reading from montgomery’s textbook, the panel said an audit should include “a forensic-type fieldwork phase,” in which auditors “presume the possibility of management dishonesty” and actively search for spots where the company might be vulnerable to fraud if management wanted to perpetrate it. and yet, the panel agreed that a routine audit should provide only “reasonable, not absolute, assurance” that the financial statements are sound.
the pob said it was “concerned that the auditing profession has not kept pace with a rapidly changing environment and that the profession needs to address vigorously the issue of fraudulent financial reporting, including fraud in the form of illegitimate earnings management.”
but the panel split over the question of whether accounting firms should be banned from providing consulting services to audit clients. at most, they recommended that the corporate audit committee approve non-audit work by the auditing firm. but they couldn’t agree on the threshold needed to trigger the review.
for its part, the aicpa noted that the report found audit practices “fundamentally sound,” but it promised to work with the panel and the sec on improvements. it cautioned, however, that some of the recommendations might prove costly.
the panel urged firms to set a tone for employees to remain objective and skeptical. it took pains to remind cpas of something they cannot be reminded of often enough: they are accountable to the public.
it’s a pity that some cpas need reminding.