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Public Interest Groups Call On SEC To Create Audit Board That Represents Investors And The Public, Not Accountants WASHINGTON, D.C. - In an August 9th letter, five of the nation's leading public interest groups called on Securities and Exchange Commission Chairman Harvey Pitt and other SEC commissioners to go beyond the minimum requirements of the law and appoint an auditor oversight board made up entirely of individuals who are strong, unwavering advocates of audit reform. Under the recently enacted Sarbanes-Oxley Act, board members must be appointed by the end of October. The organizations that wrote Chairman Pitt were Consumer Federation of America, Common Cause, Consumer Action, U.S. Public Interest Research Group and Consumers Union. "The first oversight board will be more important than any of its successors, because it will be responsible for creating the overall structure upon which the board will be built, putting together a strong team of employees to carry its mission forward, defining the agenda for raising the quality of audits of public companies, and setting up the inspection and enforcement programs that are essential to effective deterrence," the groups wrote. "Because of the central role the auditor oversight board will play in improving the quality of corporate disclosures, getting the board off to a strong start is key to restoring investor confidence. A board made up of outspoken advocates for reform -- individuals who are unlikely to back down in the face of any political pressure the accounting firms are able to exert -- is essential to that process."
The groups called on the commissioners to fulfill the requirements
of the Sarbanes-Oxley Act by taking the following steps:
* Select accountant-members of the board who do not have significant ties to the accounting industry. The law's requirement that two of the five board members be accountants is most definitely not a requirement that these board members represent the interests of the accounting profession. The law clearly requires that all board members have demonstrated a commitment to the interests of investors and the public. This mandate is designed to ensure that, while accounting expertise is represented on the board, this expertise is wedded to a pro-investor, public interest outlook. * Ensure that all board members have both the financial expertise necessary to knowledgeably evaluate issues that come before the board and the commitment to raise the quality of public audits. "If the Commission faithfully applies these three principles for selecting board members, it will go a long way toward appointing a board with independence, expertise, and credibility," the groups wrote. "However, the current crisis in investor confidence demands that the Commission go beyond the minimal requirements of the law in several areas to ensure that board members are of the highest caliber." The groups noted that the law would allow accountant members to be appointed "fresh from a major accounting firm," would allow non-accountant members to have significant ties to the accounting profession, and would allow an accountant to serve as board chairman. Public confidence in the independence of the board would be enhanced if the SEC were to adopt higher standards in each of these areas, they argued. Specifically, they urged the SEC to: * Impose a cooling-off period of at least two to three years on all accountant members. "Such a cooling-off period, in addition to enhancing the perception of independence, would offer an excellent opportunity for accountants to demonstrate the public interest and investor protection commitment that the new law imposes on board members," the groups wrote. * Select non-accountant members who are independent of the accounting industry. These members must be free from significant ties to the accounting profession, as a non-accountant employee of an accounting firm or professional association, or as a consultant, attorney, or lobbyist to an audit firm or professional association. "While there may be individuals with such a background who would be technically qualified to serve on the board, their presence would create a serious credibility problem," the groups wrote. * Appoint a chairman who is not an accountant, who has the prominent public profile that will provide real credibility to the board, and who has been an outspoken champion of the strongest possible oversight board. "In short, all the characteristics that are important for board members should be most conspicuously displayed by the board chairman," the groups wrote. The groups urged the Commission to begin its search among the prominent, public-spirited, financial experts who were prominent during the public debate that accompanied congressional consideration of the new law and who outlined a vision of what an effective, independent regulator might look like. They also urged the Commission not to allow the accounting profession to exert veto power over board appointments. "The purpose of the board is to shake things up, raise standards, and force reform," they wrote. "If it is to achieve this goal, and have credibility with the public, the best candidates will be those very individuals who are feared by the accounting industry because they will not settle for incremental change or for the appearance of reform instead of the real thing." Finally, the groups praised the Commission for soliciting suggestions for board members from the public and urged the Commission to continue in this vein by releasing all letters received by the Commission on the subject as well as by providing summaries of meetings and other less formal communications from interested parties. "Such an approach would go a long way toward assuring the public that the accounting profession was not being allowed to exert undue influence over the selection process," they wrote. "As the congressional debate on this legislation made clear, opponents of reform are far less willing to pursue in public the same ends that they aggressively promote behind closed doors." Barbara
Roper, 719-543-9468
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