Detailing Accounting Oversight Ideas
The Senate Banking Committee and the Securities and Exchange Commission have issued separate proposals for a new accounting-industry oversight board.
Here’s a look at the proposed makeup and functions of the board, as described in a bill passed by the Senate committee Tuesday and in a draft the SEC will consider at a meeting Thursday:
* Board makeup: The Senate bill proposes a five-member board, with no more than two members from the accounting profession. Members initially would be appointed by the SEC and would serve five-year terms.
The SEC proposes a nine-member board; no more than three could be practicing or retired accountants. Members initially would be approved by the SEC and would serve three-year terms.
* SEC oversight: The Senate bill requires all board rules to be approved by the SEC.
The SEC proposal would give the agency the right to review, modify or rescind any board rules.
* Industry membership: All accounting firms would be required to register with the new board under both the Senate proposal and the SEC plan.
* Board funding: The Senate bill calls for the board to be funded by fees paid by corporations (the users of accounting services) and, if the board so decides, by fees levied on accounting firms.
The SEC calls for funding by accounting firms and by companies.
* Disciplinary powers: Under both the Senate proposal and the SEC plan, the board would have the authority to investigate, and require testimony and documents from, any accounting firm. The board could request testimony from non-accountants, but would not have subpoena power.
Both proposals also would give the board the power to discipline accounting firms, using fines, censure, license revocation and other penalties.
Under the SEC plan, only the six non-accountant members of the board could vote on disciplinary measures.
* Standard-setting: The Senate proposal gives the board the authority to establish auditing standards and ethics standards for accounting firms. The Senate bill specifically requires the board to mandate that audit work papers be kept for seven years, and that an accounting firm’s audit report of a company include the results of the auditor’s testing of the company’s compliance with financial reporting laws.
The Senate bill also specifies several other accounting standards the board would have to adopt.
The SEC proposal simply gives the board the right to set standards, without spelling out specifics.
* Public reports: Disciplinary sanctions by the board would be made public under both the Senate proposal and the SEC plan.
The board also would be required, under both plans, to issue an annual report of its activities.
