Strong words from blue ribbon
Anonymous. Accountancy. London: Mar 1999.Vol.123, Iss. 1267; pg. 7, 1 pgs
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Abstract (Document Summary)
The blue ribbon committee, set up in response to SEC chairman Arthur Levitt's criticism
of audit committees, has published its "10-point plan" to improve the effectiveness of
corporate reporting. The committee was given 90 days to come up with a set of
recommendations to strengthen the role of audit committees.
Full Text (417 words)
Copyright Institute of Chartered Accountants in England and Wales Mar 1999
The blue ribbon committee, set up in response to SEC chairman Arthur Levitt's criticism
of audit committees, has published its '10-point plan' to improve the effectiveness of
corporate reporting.
The committee, co-chaired by John Whitehead, former deputy secretary of state, and Ira
Millstein, senior partner of Well Gotshal and Manges and a corporate governance
expert, was set up by the New York Stock Exchange and the National Association of
Securities Dealers towards the end of last year. Its establishment followed Mr Levitt's
speech at the opening of New York University's centre for law and business, when he
condemned 'accounting hocuspocus' in general and questioned the effectiveness of
audit committees in particular (see Accountancy International, November 1998, p 9). The
committee was given 90 days to come up with a set of recommendations to strengthen
the role of audit committees. Its membership included Philip Laskawy, CEO of Ernst &
Young in the US, and James Shiro, CEO of PricewaterhouseCoopers.
Its recommendations include the adoption of a new definition of independence for audit
committee members: that they 'have no relationship to the corporation that may interfere
with the exercise of their independence from management and the corporation:
Companies with a market capitalisation of more than $200m, says the report, should
have an audit committee of at least three directors, all independent, and at least one of
whom has accounting or related expertise.
The most significant recommendation is that an audit committee should adopt a formal
written charter, approved by the full board and reviewed every year, specifying its
responsibilities and processes. The charter, and whether the committee has satisfied its
responsibilities, should also be disclosed at the company's annual meeting.
The report also asks for the relationship between the audit committees, the external
auditor and the board of directors to be clearly defined and established in a written
statement. The committee, it adds, should also discuss with the external auditor any
relationships or services that may impact on its objectivity and independence.
Finally, it recommends that the external auditor carry out an interim review of the
company's quarterly reports.
Some of the committee's recommendations mirror proposals already made by the
Independence Standards Board, set up late in 1997 to address concerns about auditor
indepedence. The blue ribbon report's high profile, though, is expected to bring the
issues to a wider audience. An SEC spokesman said that both the NYSE and SEC were
looking at the recommendations with a view to incorporating them into the relevant listing
rules and regulations.