"What is needed is not just reform of the accounting laws, it is a rejuvenated accounting culture -- both internally in corporate finance offices and externally in audit firms," said Melancon in an address made to a forum convened by the Yale Graduate School of Management. "We are determined to demonstrate that auditors can and indeed do say 'no.' Because only if auditors are fully prepared to say 'no' to management will investors be fully prepared to say 'yes' to the markets."

He emphasized that the majority of CPAs that have been hurt by the recent accounting scandals conduct business with good advice and quality services, but said "hundreds of thousands of good apples do not excuse the behavior of a few bad ones."
       
Also in his remarks, Melancon identified six key roles that the AICPA will play in the wake of the new legislation: in standard setting, in the area of improved financial reporting, as a liaison between market institutions and corporations, in research, in education, and in promoting strong corporate governance and internal control systems.

Melancon said the AICPA is working to achieve more transparent financial reporting by calling on the Auditing Standards Board to revise existing internal control and reporting standards to include such reportable conditions as one individual holding the dual positions of Chairman of the Board and CEO, an audit committee that is not fulfilling its mission, a lack of mandatory anti-fraud education or the lack of an Ethical Code of Conduct. In this manner, the public will be put on notice when the auditor communicates internal control weaknesses to the audit committee.

Additionally, the AICPA is developing new guidance regarding an auditor's potential dependency on fees from large clients, including discussion with audit committees about potential dependency and expanded rotation requirements for key personnel. The guidance would also consider compensation policies that reward partners primarily based on auditing proficiencies, and policies that prevent a firm from penalizing a partner who says "no" at the risk of losing a client.

Melancon also announced the establishment of an Institute for Fraud Studies, which will launch in conjunction with the University of Texas at Austin and the Association of Certified Fraud Examiners. The institute will aim to enhance investor education and examine ways investors can help protect themselves against fraud.

Other intitiatives encouraged by the AICPA include the design of anti-fraud criteria and controls intended for public corporations, targeted for introduction next June, the creation of an anti-fraud training for stock management, board of directors and audit committees, and incorporating anti-fraud education in college programs and text materials. 

editor@smartpros.com