AUDITOR INDEPENDENCE

--Arthur Siegel, executive director of the Independence Standards Board

The issue of auditor independence continues in the spotlight. Instances of alleged audit failure raise questions as to whether the audit partner caved in to pressure from the client to tell the story the way the client wanted. In a speech on September 28, 1998, SEC Chairman Arthur Levitt raised questions about earnings manipulation by public companies to achieve earnings estimates. He spoke of unsubstantiated adjustments to earnings that were not challenged on the basis of materiality. In the meantime the Independence Standards Board, a little more than one year of age, has decided to embark on the development of a conceptual framework for auditor independence, a framework that is likely to take several years to develop.

This month's CPA Journal once again focuses on the issue of auditor independence, the most fundamental of all qualities that distinguish the CPA profession from most others. Because of its importance to any discussion of auditor independence, Chairman Levitt's speech on earnings manipulation is presented in its entirety. There are lessons there for auditors of both public and nonpublic enterprises.

We also have interviews with two of the most important figures on the independence scene: William T. Allen, chair of the Independence Standards Board, and Lynn E. Turner, chief accountant of the SEC. The SEC is concerned about auditor independence because of the lessor role the audit function is playing in the total scheme of the large firms' operations. The Independence Standards Board is likely to be reluctant to rush forward with major changes until the conceptual framework is complete.

And finally we have an article by the newly elected vice chairman of the AICPA, Robert Elliott, and his colleague, Peter Jacobson. They set forth their views on issues to be considered in developing a conceptual framework.

Symposium Scheduled for
December 17, 1998

The CPA Journal and the New York State Society of Certified Public Accountants are planning a symposium, "Auditor Independence: Illusion or Reality?" from 8:30 A.M. to 12:30 P.M on December 17, 1998, at India House in the financial district of Manhattan. SEC Director of Enforcement Richard H. Walker and William T. Allen will address the gathering on the challenges and solutions in process. Two panels representing constituencies interacting with and deriving benefit from the audit process will discuss the issues raised by the speakers and moderator Gary Previts.

Panel One--The Problems: W. Scott Bayless, Office of the Chief Accountant; Arthur Siegel, executive director of the ISB; James Cochrane, executive vice president of the New York Stock Exchange; Daniel Berger, Bernstein Litowitz Berger & Grossman; and a representative from the Association for Investment Management & Research will probe the challenges to auditor independence and audit effectiveness.

Panel Two--The Solutions: Robert K. Elliott, vice chair of the AICPA, KPMG Peat Marwick; A. A. Sommer, Jr., chair of the Public Oversight Board; Sally Hoffman, member of the AICPA Ethics Committee, Pierson Weiner, CPAs; John Wulff, vice president and CFO, Union Carbide Corporation; and William T. Allen, chair of the Independence Standards Board will explore possible solutions.