Audit Reform Being Undercut, Groups Allege

At least one Big Four accounting firm is using a loophole to undermine a law intended to strengthen auditor independence, consumer groups have charged in a letter to the Securities and Exchange Commission.

Under the Sarbanes-Oxley reform legislation passed last summer, corporate audit panels must preapprove all non-audit services provided by a firm’s auditor, a change intended to bolster auditor independence.

Ernst & Young is advising firms that corporate boards may provide a blanket preapproval of non-audit services, undercutting the Sarbanes-Oxley reforms, consumer groups said Monday.

Consumer Action, the Consumer Federation of America, Consumers Union, Common Cause and the U.S. Public Interest Research Group want the SEC to investigate and halt blanket preapproval of non-audit services by auditors.

Blanket preapproval will encourage audit committees to rubber-stamp non-audit services and “makes a mockery of Congress’ intent” to strengthen auditor independence, consumer groups said.

The SEC had no reaction.

An Ernst & Young spokesman declined to comment.

House Financial Services Committee Chairman Michael G. Oxley (R-Ohio) and Sen. Paul S. Sarbanes (D-Md.) had no comment.