Reliance on complete, accurate, transparent and trusted financial statements form the backbone of America’s capital markets – the strongest in the world. Front and center in the process is the CPA profession, the independent auditors of publicly held companies.

To ensure the vitality of the capital markets and the CPA profession in today’s marketplace, the U.S. Treasury Department last October formed the Advisory Committee on the Auditing Profession. AICPA President and CEO Barry Melancon is one of the accounting profession’s representatives on the 21-member committee and also serves on one of its three subcommittees. A report on the committee’s work will be published this summer.

Arthur Levitt Jr., former chairman of the SEC, and Donald T. Nicolaisen, former chief accountant of the SEC, co-chair the committee, which will make recommendations to Secretary of the Treasury Henry Paulson Jr. about how to encourage a more sustainable auditing profession. Issues being examined by the committee include audit firm concentration, financial soundness, audit quality, liability risk, and employee recruitment and retention.

Committee members were culled from several affected groups: auditors and investors; and small and large public companies, insurance companies, lawyers and regulators. Official observers for U.S. and international regulatory and policy bodies also attend the meetings.

The committee has met several times and held many public meetings where it heard from numerous witnesses. Witness testimony is available on the Treasury Department web site at www.treasury.gov/offices/domestic-finance/acap/submissions-12032007.shtml.

Also active in serving as a resource to the committee is the Center for Audit Quality, an AICPA affiliate. The CAQ submitted a letter to the committee outlining the current state of the public company audit environment. The letter is available on the CAQ’s web site (www.thecaq.org).

Three subcommittees were formed to focus on specific areas: Human Capital, Concentration and Competition, and Firm Structure and Finances. Each of these subcommittees also met several times and will share preliminary findings with the full committee in March. Topics these subcommittees will pursue include:

• The Human Capital Subcommittee, of which Melancon is a member, is charged with examining the auditing profession’s ability to cultivate, attract and retain the human capital necessary to meet developments in the business and financial reporting environment and ensure audit quality for investors.
• Exploring audit market competition and concentration, as well as the impact of the independence and other professional standards on the market and investor confidence are discussed in the Concentration and Competition Subcommittee.
• Organizational structure, financial resources and communication of the auditing profession are being covered by the Firm Structure and Finances Subcommittee.

The full committee will consider the subcommittees’ recommendations. For additional developments heading to the final report, visit www.treasury.gov.