CPA Audit Quality: Status of Actions Taken to Improve Auditing and Financial Reporting of Public Companies
AFMD-89-38
Published: Mar 06, 1989. Publicly Released: Mar 06, 1989.
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Highlights
Pursuant to a congressional request, GAO reviewed the implementation of changes to improve auditing and financial reporting of public companies.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| United States Securities and Exchange Commission | SEC should expedite its review of MD&A disclosures and issue guidance, such as the planned interpretative release, to improve information on risks and disclosures in annual reports. |
Closed – Implemented
An interpretive release regarding management discussion and analysis disclosure was issued May 18, 1989.
|
| United States Securities and Exchange Commission | SEC should adopt its proposal to require management of public companies to publicly report on its responsibility for the financial statements and internal controls. |
Closed – Not Implemented
SEC does not plan to implement this recommendation.
|
| United States Securities and Exchange Commission | SEC should require the auditor to review and publicly report on the management report. |
Closed – Not Implemented
SEC does not plan to implement this recommendation.
|
| United States Securities and Exchange Commission | SEC should reverse its decision on audit committees and adopt a requirement for public companies to establish audit committees. |
Closed – Not Implemented
SEC does not plan to implement this recommendation.
|
| Other | AICPA, or SEC, if it concludes it has the authority, should require accountants to report directly to SEC when they resign or are terminated. However, if AICPA or SEC does not adopt such a requirement, legislation would be necessary to require direct notification to SEC. |
Closed – Implemented
AICPA requires this reporting of its SEC Practice Section members under a new rule adopted, effective May 1, 1989.
|
| United States Securities and Exchange Commission | AICPA, or SEC, if it concludes it has the authority, should require accountants to report directly to SEC when they resign or are terminated. However, if AICPA or SEC does not adopt such a requirement, legislation would be necessary to require direct notification to SEC. |
Closed – Implemented
Since 1990, AICPA has required that all member firms that audit SEC clients join its SEC Practice Section (SECPS). As a result of this requirement, about 15,800 SEC clients are currently audited by members of AICPA's SECPS. One of the membership requirements that all SECPS firms must comply with is that they "report directly to the SEC the termination of any client-auditor relationship with an SEC registrant within five business days." About 325 SEC clients continue to be audited by non-AICPA member firms. These firms are not required to report audit terminations to SEC. In light of the small percentage these SEC clients represent of the total SEC client population and the lack of planned SEC actions in this area, GAO is closing this recommendation.
|
| United States Securities and Exchange Commission | SEC should resolve the remaining issues and adopt a requirement that all firms practicing before SEC be subject to periodic peer reviews. However, if SEC determines that it does not have sufficient authority to do this, legislation would be necessary. |
Closed – Not Implemented
SEC has dropped action on this issue, and it does not plan to adopt such a requirement.
|
| Special Committee on Investigations | For SEC to monitor the effectiveness of SIC activities, the Committee should provide SEC with access to all required information about the cases it investigates. |
Closed – Not Implemented
SEC reviews activities of the Quality Control Inquiry Committee (QCIC), the organization that replaced SIC. SEC examines closed case summaries, QCIC staff summaries of allegations, and a limited amount of other information that, in total, does not permit SEC to conclude on QCIC's effectiveness. However, QCIC is one part of the accounting profession's quality control program--with the peer review program being the major quality control review and evaluation mechanism. SEC has access to a significant amount of peer review program documentation (i.e., review workpapers and other records). SEC believes that it can appropriately accomplish its SEC client audit oversight responsibilities through its current peer review program and QCIC oversight activities. The additional costs that SEC would incur by reviewing more QCIC case records and documents would not adequately increase SEC's ability to effectively monitor auditor performance. SEC is not planning any action on this recommendation.
|
| Other | AICPA should issue the industry audit guides currently under revision as quickly as possible and undertake an effective program to keep all guides current. |
Closed – Implemented
New industry audit guides have been available since January 1991. The looseleaf format will allow easier updates.
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