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Three former SEC Chief Accountants urge strong PCAOB actions

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07 Jan 2003

Three former Chief Accountants of the US Securities and Exchange Commission have written a to the new Public Company Accounting Oversight Board proposing a three-point program to restore investor confidence in the US capital markets.

They describe the accounting scandals that surfaced in the past year as "cataclysmic events [that] have changed the world's view of a system that we have often proclaimed to be 'the best in the world.' Understandably, the damage to the reputation of our financial reporting system and its critical guardians has been so severe that the investing public has lost confidence and now demands real reforms."

The pillars of the three-point program proposed by former Chief Accountants Walter P. Schuetze, Michael H. Sutton, and Lynn E. Turner are: PCAOB must exercise its mandate to establish independence guidelines that will ensure that auditors embrace a role that is fully consistent with high public expectations. PCAOB must insist that the profession tackle financial reporting failures as a distinct issue with a distinct goal - disaster prevention. "We understand that, in life, 'zero defects' are almost never realized. Nevertheless, the public expects that the profession will pursue that end - and with greater energy than in the past - and with more success. To this end, the PCAOB should establish auditing standards, rather than delegating that role to the auditing profession." PCAOB should establish necessary regulatory processes that give comfort to investors and the public that the profession is doing all that it can do to prevent future episodes of failed financial reporting. Those processes should include independent inspections of the audits performed by auditors of the financial statements of public companies. Inspections should be performed by staff of the PCAOB and not 'outsourced' to the auditing profession.

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