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GAO-02-742R 1 (2002-05-03)

handle is hein.gao/gaobaalyy0001 and id is 1 raw text is: I 0 G A 0 Comptroller General ----Accountability * Integrity * Reliability of the United States United States General Accounting Office Washington, DC 20548 May 3, 2002 The Honorable Paul S. Sarbanes Chairman, Committee on Banking, Housing, and Urban Affairs United States Senate Subject: Accounting Profession: Oversight, Auditor Independence, and Financial Reporting Issues Dear Mr. Chairman: This letter responds to your recent request that we provide our views regarding what steps the Congress should consider taking to strengthen oversight of the accounting profession, auditor independence, and selected financial reporting matters. The sudden and largely unexpected bankruptcy of the Enron Corporation (Enron) and other large corporations' financial reporting restatements have raised questions about the soundness of the current self-regulatory and financial reporting systems and resulted in substantial losses to employees, shareholders, and other investors. These events have also raised a range of questions regarding how such dramatic and unexpected events can happen and the role and capacities of various key players under the existing systems. The issues surrounding the accounting profession's current self-regulatory system for auditors involves many players in a fragmented system that is not well coordinated, involves certain conflicts of interest, lacks effective communication, has a funding mechanism that is dependent upon voluntary contributions from the accounting profession, and has a discipline system that is largely perceived as being ineffective. (Enclosure 1 serves to illustrate the complexity of the current system of regulation and oversight and the stakeholders who rely on the system.) Simply stated, the current self-regulatory system is broken and oversight of the self- regulatory system by the Securities and Exchange Commission (SEC) has not been effective in addressing these issues to adequately protect the public interest. As a result, given the important role that independent auditors play and various inherent problems in the current self-regulatory system, direct government intervention is needed to statutorily create a new body to oversee the accounting profession's responsibilities for auditing public companies. This step is necessary in order to increase the effectiveness of the audit process and to rebuild public confidence. The new body should be independent of the accounting profession, have significant standards-setting, oversight, and disciplinary authority, be adequately resourced to GAO-02-742R Accounting Profession Issues

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