The first major step of the Independence Standards Board in its journey toward a comprehensive, logical, coherent set of standards was completed at its February board meeting with the release of a discussion memorandum on an auditor independence conceptual framework. The comment deadline is May 31, and the document is available at the board's website (www.cpaindependence.org). The DM is the product of professors Henry R. Jaenicke and Alan S. Glazer and seeks answers to a number of difficult questions. Those wishing to respond will want to give themselves adequate time to become immersed in the document: The issues are complex and highly theoretical.
For example, the DM seeks to learn from commentators whether the goal of the independent audit is to increase the reliability or the credibility of financial statements. It also raises the related question of whether standards should address both the fact and the perception of independence.
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In December 1999, the ISB issued ISBS No. 2, Certain Independence Implications of Audits of Mutual Funds and Related Entities, which attempts to bring some logic to the rules having to do with audits of mutual funds that have complex relationships with other funds and fund managers. The difficulties with the current mutual fund independence rules were evident in the recent report on independence violations at PricewaterhouseCoopers.
The ISB will also consider the comments on its legal services DM issued in late 1999, which had a comment deadline of February 29. The issues in that DM addressed the threat to auditor independence if a multidisciplinary accounting firm provided both legal and audit services to an SEC registrant. One intriguing issue raised is whether a lawyer employed by a CPA firm could provide services permitted by the legal profession but not presently permitted under auditor independence rules and interpretations, such as negotiating a contract or the terms of a dispute resolution.
With these meaty topics on the ISB's table--and with three of its members CEOs of Big Five firms--its effectiveness in the eyes of the SEC will be severely tested. *
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