Manuel H. Johnson
Member, Independence Standards Board
Thank the SEC for the opportunity to testify.
Applaud the SEC and Chairman Levitt for addressing this issue.
The U.S. capital markets are strongest globally because of investor trust in the system.
Support the need for SEC rule making.
The system needs improving and updating because of changes in technology and the environment that influence investor perceptions of independence.
The complexity of financial and employment relationships and the extent of non-audit services provided to audit clients by the major accounting firms has significantly increased the potential for conflicts of interest and threatens the integrity of the independent audit function.
While there currently is a collection of rules by the SEC and a series of complicated guidance for the AICPA, there is clearly a need for SEC rule making now to streamline and modernize old rules and guidance, and to set new policy that clarifies the proper scope of services for accounting firms that are entrusted with performing independent audits.
As a member of the ISB, I am pleased that the SEC, in its proposed rule making, has adopted the approach followed by the ISB in its deliberations on employment with audit clients, family relationships and financial interests.
However, I do not see the need to develop separately from the ISB, a completely different set of guidance and definitions that support such similar rules in these three areas.