US accountancy's main professional body on Tuesday ordered the
world's largest firms to
implement sweeping controls to ensure compliance with auditing independence rules.
The AICPA said the firms, known as the Big Five, have been given
until the end of March to
confirm that all staff are complying with independence rules. Susan Coffey,vice-president of self-regulation at the AICPA, said there was a renewed sense of urgency and concern in the profession following a report last month that exposed more than 8,000 violations of share ownership regulations at PriceWaterhouseCoopers, the world's biggest auditor.
She said the tough deadline and sweeping guidelines were to give the firms "a clean cut-off on March 31 to go forward" and implement quality controls. The PwC report, commissioned by the US Securities and Exchange Commission, found partners and other staff holding shares issued by public companies audited by the firm. The SEC has charged that it is the culture at the top of the largest firms, and not the rules, that is jeopardising the independence of audits.
In public the other four firms have expressed confidence in their systems for ensuring compliance. However in meetings with the Public Oversight Board, an independent body tied to the AICPA, they have conceded the systems are not good enough.
The AICPA's mandatory requirements add considerable pressure to the
Big Five when the
POB is already conducting a sweeping review of their audit independence. That review will in part compare PwC's new procedures with those at the other four. PwC's efforts to ensure compliance have been praised by the SEC.
Ms Coffey said the new guidelines were designed to ensure uniformity. "Some firms may need to have completely different systems. Many will have to be tied to payroll so that all employees are covered." She said the firms fully supported the initiative and the SEC had indicated it would be satisfied if the guidelines were implemented. By March 31, the firms have to create "plain English" guidelines on indpendence and send them to "professionals of all domestic offices and to all partners and managers of foreign affiliates".
They also must by the end of the year establish formal training programmes and design tracking systems, updated at least monthly, to monitor staff investments against restricted companies. The firms will be spending over $25m on the systems, the AICPA said.
The Big Five have also been told that they must develop a regime of internal audits of compliance. They must establish specific sanctions for violations.
Barry Melancon, the AICPA's chief executive, repeated however that existing independence rules were outdated and unreasonable. SEC rules taken together with those established by the profession sometimes bar distant relatives of people not involved in audit work from investments not directly related to audited companies.
The SEC has said it supports the profession's separate initiative to look at reform of the rules