A LETTER TO THE INDEPENDENCE STANDARDS BOARD

Following are excerpts from a letter sent to us by the writer.

William T. Allen, Chair:

Your comments during your interview with James Craig and Douglas Carmichael (December 1998 The CPA Journal ) were very interesting. Many in the profession, I know, are grateful that you accepted this key leadership assignment.

Recently, I had occasion to read every article with "independence" in the title in the Journal of Accountancy from the publication's initial issue in November 1905 through the early 1970s. There have been some astute discussions; there has been some clear understanding of what independence is; there have been candid discussions of SEC rulings and the resistance to what was demanded. There was lacking, as there seems to be in the present discussion, a candid review of the environment in which public accountants function.

During your interview, the interviewers referred to the SEC chief accountant's comment that "the key factor in auditor effectiveness is the mindset of the partner making the decisions." Your comment was reported as "The firm as a whole probably has the right set of incentives to act objectively and without bias." You don't state your comment as an exact assumption, but I wonder if what you said identifies the most important hypothesis, for which your board must seek empirical evidence that is gathered according to the most rigorous tenets of empirical research.

It is difficult for me to believe that a partner would defy the objectives of his firm. To what extent do public accounting firms have essentially two sets of objectives--those that are pronounced by the leadership that adhere to the expectations of the profession and those that are operational? To what extent do articles about rainmakers in public accounting, for example, identify the professional constraints on marketing strategies? A January 17, 1999, column in the New York Times by Floyd Norris is worthy of consideration. If the details to which Norris refers are true--and to date I have seen nothing further about the behavior of Livent's CFO--serious questions must be raised about the motivations of the young partner and the incentives her public accounting firm provided.

Attention to a conceptual framework is interesting, but that framework must function in a real-time context of a public accounting firm's actual--not pronounced--environment. I wonder if the problem is not specification of what independence means but rather the morality of the leadership in the field of public accounting. *

Mary Ellen Oliverio
Department of Accounting
Pace University