The nation's new accounting watchdog panel voted Wednesday to take over standard-setting for corporate auditors, effectively ending the beleaguered industry's long tradition of self-policing.
From now on, the Public Company Accounting Oversight Board will write the guidelines that govern key areas of accounting industry behavior, including auditing procedures, ethics and independence. The oversight board will draw up the guidelines in consultation with a new advisory panel, no more than one-third of whose members will be accounting professionals.
In creating the accounting oversight board last summer as part of the Sarbanes-Oxley reform legislation, Congress gave the panel the option of allowing the American Institute of Certified Public Accountants, an industry trade group, to continue developing industry standards, subject to the board's oversight.
But the board, according to member Kayla J. Gillan, decided that taking over that task was more in keeping with its mission of restoring confidence in an industry tarred by scandals surrounding such firms as Enron Corp., WorldCom Inc. and Global Crossing Ltd.
Former accounting giant Arthur Andersen collapsed amid allegations of criminal wrongdoing in its role as Enron's auditor.
"One of the concerns that the market has expressed in the last two years is that the auditing industry is insular and does not reflect the interests or concerns of investors," Gillan said in a telephone interview Wednesday.
"I'm not saying the AICPA did a bad job," added Gillan, former chief counsel for the California Public Employees' Retirement System, "but part of our mandate was to change the status quo."
Until the new advisory panel is constituted -- probably by the fall -- and the oversight board's staff begins reviewing standards, the industry will continue to rely on the existing AICPA guidelines.
The trade group called the board's action "an important first step" and said it was looking forward to assisting in drafting new audit standards.
At a sparsely attended meeting in Washington on Wednesday, the board also adopted a framework for financing itself through levies on public companies and mutual funds.
The fees, graduated according to companies' stock market capitalization, probably will range from $2 million a year for corporate giants to $100. The money will pay for a staff including about 300 inspectors who will conduct regular examinations of the firms that audit public companies.
Votes by the board are subject to ratification by the Securities and Exchange Commission, but Gillan said the board expected such approval in time to begin billing companies by late May or early June. Currently, the board borrows its operating funds from the U.S. Treasury.
Also Wednesday, the board voted to seek public comment on proposed ethics guidelines for its members and staff. Among the proposed rules are bans on outside paid employment for board members and on investments in any firms subject to the board's oversight. The proposed rules also would bar the board's staff from accepting outside employment without board permission. The comment period runs through May 9.
On Tuesday, the SEC announced its unanimous decision to name William J. McDonough, retiring president of the Federal Reserve Bank of New York, as chairman of the five-member oversight board.
Facing an April 26 deadline under Sarbanes-Oxley to complete a list of organizational tasks, the board will hold a public meeting Monday to consider rules for registration of auditing firms. An issue to be discussed is whether foreign firms should be subject to oversight.
Bloomberg News was used in compiling this report