Cindy Fornelli, Executive Director of the Center for Audit Quality, submitted the following letter to the editor of the Financial Times:
In the European Union and the United States, auditor independence is supported through robust regulation, professional standards, oversight by independent audit committees, and the extensive policies of public company auditing firms. By publishing a letter to the editor ("Regulators have failed to improve audit quality", June 25) that distorts this reality so egregiously, the Financial Times does a disservice to its readers.
Consider the facts in the United States. The letter’s suggestion that "regulators have failed to restrict services offered" is unquestionably false. A wide range of services that policymakers deemed inconsistent with the auditor’s independent role—including internal audit, valuation, and investment banking services—are prohibited outright under U.S. federal law: the Sarbanes-Oxley Act of 2002. That law also requires that any of the limited permissible non-audit services be pre-approved by the independent audit committee, and that fees from these services be disclosed publicly. Under Sarbanes-Oxley, regulators have tools to inspect audit firms and enforce independence violations— and they do so.
Meanwhile, the EU, which already restricts non-audit services, has adopted audit reforms that will sharply restrict these services even further when the reforms come into force next year. Elsewhere around the globe, even where there are no formal auditor independence rules, or existing rules are less restrictive than international ethics standards, many public accounting firms voluntarily adhere to policy standards promulgated by the International Ethics Standards Board for Accountants.
On both sides of the Atlantic—and around the world—audit firms are committed to continuously enhancing their policies, processes, and systems to monitor independence on audit engagements. Thanks to these efforts, along with ongoing work from policymakers and other stakeholders, the audit model that the letter disparages is in fact more focused than ever on ensuring the auditor’s independence.
Center for Audit Quality