CCR Supports Audit Panel's Draft.

In a letter to David Pearson, staff director of the Public Oversight Board's Panel on Audit Effectiveness, FEI's Committee on Corporate Reporting largely supports the recommendations contained in the panel's exposure draft but asserts that "the panel has not allowed sufficient time for interested parties to comment." Nevertheless, OCR commended the panel on "the well-thought-out scope of the project and the comprehensive nature of its recommendations."

CCR endorsed the panel's recommendations to enhance the importance of the auditing and accounting services within consulting firms. The letter states that while consulting practices have provided the "primary growth engine" for the major accounting firms over the past decade, the accounting and auditing side of the businesses have certainly remained the "backbone" of such practices. Any move towards a greater attribution of value to the audit function, CCR believes, would be welcome.

CCR offered a series of suggestions for modifications in the exposure draft:

* Forensic-Type Fieldwork Phase. The Committee supports any move to strengthen the process of risk assessment for fraud in the planning stage and to train auditors to be more fraud-conscious. However, it asserts that to go beyond "healthy skepticism" into the realm of "presumption of fraud" will "undoubtedly lead to a disruption of the free flow of information between client and auditor...resulting in a reduction in the quality of those audits."

* Retrospective Audits and "Continuous Auditing" Techniques. The Committee contends that "these recommendations will result in expanded audit effort and incremental audit fees that are not warranted for most companies." Although these procedures can be beneficial, the Committee maintains that they should be based on risk assessments prepared by the auditor in the planning phase.

* Use of Internal Auditors. CCR supports a supplemental recommendation that the Auditing Standards Board, provide more specific guidance not just on the extent to which external audit work should be tested, but on the degree to which internal audit may assist in the overall scope of the audit."

* Revenue Recognition. CCR disagrees with the Panel's recommendation that the FASB add a revenue project to its agenda. The Committee recommends directing revenue-recognition issues "to the Emerging Issues Task Force (EITE)... [because these are] ... precisely the types of issues that the EITF was created to address."