And also, I agree with the four generally, but I think there ought to be a fifth governing principle that would determine when an auditor is independent, and it should be a behavioral principle.
The literature is very clear
We ought to make a statement that when an auditor either has any relationship or engages in any activity that gives the appearance that independence may be impaired that that’s something that ought to be proscribed.
I’m talking about ethics programs that are the keystone of the Defense Industry Initiative and has been adopted by the overwhelming majority of large public corporations
If you say, “Well, how do we enforce that?” well, we do have an existing ethics rule forbidding acts discreditable to the profession. So that’s a behavioralrule. We already have one, and I think we need another behavioral rule that deals with the ethical concepts of the foundation of our profession.
Okay. Down to non-audit services. I would hope that this whole — I was disappointed that Chairman Allen didn’t clarify whose responsibility it was to talk about the ethics regarding non-audit services, because the Ethics Executive Committee was the one that came out with a release on non-audit services.
And yet, the Independent Standards https://maxloan.org/installment-loans-ma/ Board is supposed to be doing that, I thought, but then — anyway, in the omnibus ’99 ethics release, we’ve still got the Ethics Executive Committee talking about non-audit services.
With respect to the issue of internal audit out-sourcing or out-sourcing of the internal auditing function, I’ve written extensively on this as far as back as 1993, and maybe your files have some of my diatribes on the first total out-sourcing of internal auditing that was with our Chicago company Commonwealth Edison.
Internal auditing is a management function, and to have the whole function, which is what really is connoted when you’re talking about out-sourcing to the same firm that you’re doing — that’s doing the external audit, that’s a contradiction and ought to be proscribed.
Internal auditing is different than external auditing. There are different objectives, different standards. The firms have different staffs that do it. “Out-staffing” was a term that I tried to coin. Firms didn’t like that at all.
On to quality controls. It seems incongruous for firms to be required by auditing standards to evaluate a client’s ethical control environment or corporate culture as a part of every audit engagement, and yet, with one exception, the firms have no counterpart control mechanism themselves.
Clearly, maintenance of professional behavior that protects the public’s interest is too important a subject for firms to continue to ignore the control mechanisms that have been made a part of U.S. jurisprudence.
The Ethics Research Center here in Washington came up with recent results of their survey that — again I’ve done some research that shows the beneficial aspects of a code of conduct for corporations. Ethics Research Center has similar results.
So that’s what I’m urging, two things: One, adding a behavioral rule to your general rules; and secondly,encouraging the CPA profession to assume a leadership position in ethical behavior by developing and implementing a world class exemplary ethics and business conduct program under the oversight of the hopefully to be soon reinvented Public Oversight Board.
CHAIRMAN LEVITT: Thank you very much. Dr. Verschoor, you touch on something that I think few of our witnesses have mentioned today, and again that is because this profession, in my judgment, has been given a special franchise.
And because of that franchise I think they have a special responsibility, and that responsibility is one we hear less of than I think I’d like to, and that is the public interest.