AICPA - Accountants support reforms to boost audit quality, accountability

Representatives of more than 350,000 members of the nation's accounting profession testified in mid-March on Capitol Hill that they support a number of reforms designed to restore faith in the financial reporting system and reassure investors by enhancing audit quality and increasing corporate accountability, ac-cording to an announcement from the American Institute of Certified Public Accountants.

AICPA Chairman James Castellano told members of the Senate Banking Committee that the organization will support "meaningful and appropriate reforms and be both an advocate and a catalyst for necessary change."

He added, "Enron and its aftermath have clearly shaken public confidence in the quality of financial reporting. It has brought us to the cusp of an historically significant moment when we need to give thoughtful and careful consideration to meaningful reform."

Castellano said that the value of any new public policy affecting the accounting profession must be assessed against a public interest test that asks four basic questions:

1. Will it help investors make informed investment decisions?

2. Will it enhance audit quality and the quality of financial reporting?

3. Will it help restore confidence in the capital markets, our nation's financial reporting system, and the accounting profession?

4. Will it be good for America's financial markets and economic growth?

Castellano outlined four initiatives that he said passed this test.

Create a new private sector regulatory body. "The time is right to create new systems for performing quality reviews of the practices of public company auditors and for disciplining those auditors. Accordingly, we support moving from public oversight to public participation, from self-regulation to public regulation for these important processes. We further believe that these processes should be subject to SEC oversight," Castellano said.

Reform the financial reporting pro-cess. Castellano suggested a move towards more timely and, ultimately, real time disclosures and reports containing a broader "bandwidth of information. Investors should know about plans, opportunities, risks, uncertainties and the drivers of future success," he said.

Make new rules for corporate governance. "Audit committee members should have auditing, accounting or financial experience. Periodically, audit committees should hold separate executive sessions with management, the independent auditor and the internal auditors. We also believe the audit committee should be involved in hiring and firing the independent auditor."

Support corporate truthfulness. Cas-tellano urged Congress to make it unlawful to improperly influence or mislead the auditor. "Make it a felony for anyone in a company or anyone else involved in the financial reporting process to lie to their auditor," he said.

"These initiatives strike an appropriate balance between the need for government oversight and the efficiency of the private sector. We will firmly support Congress and the (Securities and Ex-change Commission) in enacting these proposals," he said.

The AICPA is the national, professional organization of CPAs, with more than 350,000 members in business and industry, public practice, government, and education.