This report will briefly describe independence as it relates to accounting profession, identify and describe the new requirements presented by the SEC and then describe the events and circumstances that led to the new requirements being proposed. It will also describe and assess the validity of the concerns that were stated at the various public hearings by the affected user groups. First a simple but important definition of independence and

The release of this new rule establishes four principles to evaluate when assessing if an auditor is independent. "An auditor will not be independent when (1) has a mutual or conflicting interest with the audit client (2) audits his or her own work (3) functions as management or an employee of the audit client, or (4) acts as an advocate for the audit client." These four principles are to be used when trying to determine if the actions of an auditor will impair the independence of an auditor and were the basis for forming the new independence requirements. They are rooted in the belief that an auditor must be independent in fact and appearance.

There are a number of events in the accounting profession that led to the need for rules to obtain independent auditors. Accountants are in a profession that is seeing dramatic changes in the way firms are structured, the services they are providing, as well as increased competition. These events are creating situations that may seriously hinder the independence of auditors by giving them opportunities to act in the interests of their clients.

United States, SEC Fact Sheet: The Commission's Proposal To Modernize the Rules Governing the Independence of the Accounting Profession. . 2000

Carmichael, Douglas. Public Hearing. New York. July26, 2000.

Brown had concerns that were related to the implementation of the new rules as a whole. He expressed concern that the regulation of the new rule cannot be sufficient by itself. The audit committee will have to play an important role in the process. It is key that the audit committee identifies independence violations, because they are on the front line and are closest to the action. The SEC is only one organization and will need a critical amount of help in finding violators. He also recommends that the SEC becomes an active participant in recommending or implementing similar rules in other countries. He stresses this importance because the United States constantly interacts with all other countries and the new rules will significantly affect interactions. This is important, but it will they will have to convince the SEC to spend time on this task. It would be much easier for the SEC to recommend other countries to adopt the same requirements as the U.S. Brown goes on!

Employee performance is not likely to impair an auditor's mindset and would not result in any bias. If an auditor helps choose human resource policies such as recruiting Evaluate this comment further

Public hearings were held in New York City for all concerned parties to voice their opinions on the proposed new independence rules. Different parties that were represented were Chartered Public Accountants (CPA's), professors, officers of major non-accountant companies, and regulators. Not all there comments will be examined, only their main concerns will be highlighted and evaluated. The first comment that will be examined is from Michael Daggett, who is a director at large of the National Association of State Boards of Accountancy and a CPA.

This report will conclude by drawing on comments given by chairman of the SEC, Arthur Levitt. He believes "in this environment of conflicting interests, the investing public relies on the accountant to stay true to his or her fiduciary duty, to never lose sight of the precious franchise that is theirs to guard so vigilantly." He is aware that the perceived value of the audit is being put at risk and for this and other reasons he is strongly committed to keeping the publics interest first, and will not let new circumstances interfere with his task. He also realizes that the SEC cannot do it alone and is willing to work with the profession to continuously improve the situation. He is dedicated to continuous improvement of financial statements to better serve investors , the market , and the public. He stresses that he will leave the communication lines open between the SEC and CPA's in order to retain

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Approximate Word count = 5349
Approximate Pages = 21 (250 words per page double spaced)