PUBLIC OVERSIGHT BOARD ISSUES ANNUAL REPORT
The Public Oversight Board (POB), chaired by A.A. Sommer, Jr., recently issued its 1998 annual report. In many ways the report takes a "state of the profession" tone as part of the POB's role in upholding the integrity of the financial reporting process for public companies. Very evident in this year's report were SEC Chair Arthur Levitt's concerns as expressed in his September 28, 1998, speech, "The Numbers Game" (reprinted in full in the December 1998 CPA Journal).
Levitt spoke of an unhealthy trend in financial reporting toward more and more "earnings management," motivated in many cases by companies seeking to meet analysts' projections. Levitt urged private sector solutions, and the POB reports its part of the response.
Specifically, the SEC asked the POB to form a group toward its major constituents to review the way audits are performed and assess the impact of recent trends on the public interest. In particular, the SEC is concerned whether the "risk-based approach" has in any way eroded audit quality. In response, the POB formed the Panel on Audit Effectiveness, to be chaired by Shaun F. O'Malley, former chair of Price Waterhouse, and hired a three-person staff of retired partners, two of whom are former Auditing Standards Board members and the other a member of the SECPS Quality Control Inquiry Committee (QCIC). The panel itself is made up of lawyers, former securities regulators, and academics.
Other matters discussed in the POB report were--
The POB also discussed comprehensively the work of the QCIC process in the report. The QCIC is charged with determining whether allegations of audit failure against SECPS firms involving SEC registrants indicate a need for those firms to take corrective actions to strengthen their internal quality control processes or to address personnel problems. During the past year, QCIC identified four issues in six cases where it believed the profession would benefit with additional guidance material. *
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