State Board Report

November 2008

As NASBA’s Annual Meeting keynote speaker Donald T. Nicolaisen highlighted the some of the final 31 recommendations of the US Treasury Department’s Advisory Committee on the Auditing Profession (ACAP) (see sbr 10/08), he surprised many in the audience with his call for “Federally Chartered Audit Firms.” He pointed out the commentary statement which he had developed with his ACAP Co‐Chair Arthur Levitt, Jr., as part of ACAP’s final report, telling how its recommendations could be implemented. “Chairman Levitt and I are prepared to endorse Federally Chartered Audit Firms which would have additional requirements,” he stated. Mr. Nicolaisen explained that these firms would only handle audit‐related matters and would be entitled to limits on their liability, with the hope that they could further the ability of the audit profession. The Co‐Chairs support “a strong, vibrant PCAOB” and “would like to see a regulator that extends beyond its charge to the sustainability of the audit community.”

Mr. Nicolaisen praised the 21 members of ACAP, including NASBA Director‐at‐Large Gaylen Hansen, who contributed significantly to the project. One of the ACAP recommendations which strongly support the adoption of the mobility provisions of the Uniform Accountancy Act, has already been acted upon in 31 states, he reported. “We think it is important to have firms mobile to bring the right skill set to an audit when needed,” Mr. Nicolaisen stated.

The ACAP Co‐Chairs’ statement in the final report describes the federally chartered audit firm: “Characteristics of such a structure might include incorporation (with tax and financing advantages), requirements for capitalization, federal licensing, further clarity of PCAOB oversight, new governance structures with independent directors, limits on liability for audits of public companies, mandatory public reporting, including audited financial statements, and improvements to the auditor’s report to investors. Additionally, Congress may in connection with creation of a federal charter, wish to consider the establishment of a federal insurance agency to provide coverage to investors in certain instances, funded by a portion of the audit fees charged to public companies. A federally chartered structure for auditing firms would have the advantage of maintaining independence and the focus on the audit as the principal product.”

When Mr. Nicolaisen was asked at the NASBA Annual Meeting what part the state boards would play should these federally chartered firms be created, he responded that it would be desirable to “have the UAA at the state level.”

He commended the boards for looking at administering the Uniform CPA Examination outside the United States. Mr. Nicolaisen warned that the United States could become isolated if “the rest of the world is focusing on IFRS” and the US is not. He observed, “Having accounting standards that apply globally enhances the quality of the work.”

Related News

Full Issue