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POB annual report stresses liability crises.

The Public Oversight Board's (POB's) 14th annual report focused on the profession's response to the growing liability crisis. The five-member POB oversees the activities of the SEC practice section (SECPS) of the American Institute of CPAs division for CPA firms.

According to POB Chairman A. A. Sommer, Jr., the POB determined it will support efforts to pass legislation restoring the balance between accountability and liability.

Auditors, said Sommer, should be accountable for harm caused when they fail to meet their responsibilities, but not for "the frauds, the failures, the shortcomings of others" and not for "the failures of government polices."

Sommer also proposed that if such legislative relief is secured, the profession should amend the charter of the AICPA quality control inquiry committee (QCIC), which currently limits that body's inquiry solely to whether the allegations in cases suggest a flaw in the accused firm's quality controls or compliance with them or a fault in the profession's standards.

Sommer recommends permitting inquiry into whether there was a failed audit and, if so, the reasons for it. If the QCIC functioned like the National Transportation Safety Board (NTSB), Sommer said, "skilled and experienced auditors and insightful academics would examine the records of the firm to determine whether the allegations reported to the QCIC indicate there may have been a faulty audit and, if so, what caused it, what measures should be taken by the profession to avoid a recurrence and how similar problems can be avoided."

He added, "The entire airline industry learns from the NTSB inquiries; the entire accounting profession could learn from a similar inquiry into audit failures."

Peer review oversight. Commenting on its oversight of peer reviews by SECPS firms, the report notes during the 1991-92 year 300 firms had initial peer reviews. These resulted in a 25% rate of qualified or adverse reports and the finding that over 5% of peer-reviewed audit engagements were seriously flawed. The firms were required to undertake substantial corrective measures to improve their quality of practice and eliminate the deficiencies in the flawed engagements.

Since the inception of the peer review program in 1977, firms undergoing reviews subsequent to their initial reviews have had a 7% rate of qualified or adverse reports and flagged engagements approximating 1%. This, the report concludes, "indicates plainly the remedial benefits of the peer review program."

Copies of the annual report are available by writing the Public Oversight Board, One Station Place, Stamford, Connecticut 06902.
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Title Annotation:Public Oversight Board
Publication:Journal of Accountancy
Article Type:Brief Article
Date:Feb 1, 1993
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