New world order: as the PCAOB takes shape, the AICPA's role is blurred - Public Company Accounting Oversight Board's responsibility for standards - American Institute of Certified Public Accountants

California CPA, June, 2003 by Jerry Ascierto

The early Greek philosopher Heraclitus said it best: "The only constant is change." And probably no organization knows that more than the ATOPA.

As the Sarbanes-Oxley Act alters the landscape of the accounting profession, the national voice of the profession--the AICPA--is undergoing some changes of its own. To what degree remains unknown, but with the creation of the Public Company Accounting Oversight Board, it's clear that things aren't what they used to be.

TRANSITION MODE

As the PCAOB gathers steam--just take a look at its recent decision to take from the AICPA its power to set auditing standards--some in the profession are wondering how the AICPA will fit into this new world order and how diminished its power will become.

"We have a lot of areas which will be evolving in a transition mode as the PCAOB gets up and gets its legs," says AICPA Chairman Bill Ezzell. "It's a matter of evolution and not revolution, as everybody gets a better understanding of how this will actually work."

Since the PCAOB is still fleshing out key issues, much remains to be seen, Ezzell cautioned. But some changes are evident.

"The whole concept of an SEC practice section, in time, will have to evolve slightly," Ezzell says, since firms will now be registering with the PCAOB.

With a minimum membership fee of $800, the SEC practice section has been a constant revenue stream for the AICPA.

Ezzell adds that aside from a "slightly different role" for the audit standard setting process, "peer review would be the biggest change initially. And we're going to be moving all our ethics cases in the public company arena over to the PCAOB."

While the AICPA still plans to publish guidance and interpretations of auditing standards for its members, "... in part, that may change slightly," Ezzell says, without elaborating.

There's also the question of whether continuing education requirements in the accounting and auditing areas will change, and if a new entity is making the rules, will it--and not the AICPA--also explain those rules?

I don't think that was what was contemplated by the statute," Ezzell says, but the PCAOB "... could put forth some recommendations for change there."

AN INSIDER'S VIEW OF SOX

Sen. Mike Enzi, R-Wyo., has a unique perspective on the formation and intent of the Sarbanes-Oxley Act.

As the Senate's only accountant, a senior member of the Senate Banking Committee and the ranking member of the Securities and Investments Subcommittee, Enzi was brought into the legislative process early on by Sen. Paul Sarbanes, D-Md.

Enzi helped guide the legislation "with an eye toward protecting small businesses and small accounting firms ... holding lawyers and accountants equally responsible for breaking the code of ethics and to change the implication that not all nonaudited services should be presumed illegal," he says.

Enzi characterized the formation of the PCAOB as the cornerstone of the legislation, pointing out that while the SEC always had the authority to set accounting standards, this authority was in part ceded to the FASB.

"It's envisioned the PCAOB will have the same type of relationship with the AICPA," Enzi says, when it comes to auditing standards. The formation of the PCAOB, he says, was focused on issues of enforcement rather than rewriting auditing standards.

That focus shifted, however, when the PCAOB took one of its first acts and said it would set auditing standards.

"The AICPA lost its ability to set standards because corporate America lost its confidence in the ability of the Institute to police its own industry," Enzi says. "I do believe that the environment at the time highlighted a number of problems inherent with the current oversight structure of the accounting industry."

So, how does he see the AICPA fitting into the standard setting process?

"I hope to continue to see the AICPA actively contribute their ideas and proposals to the PCAOB," Enzi says. "Congress envisioned in the Sarbanes-Oxley bill that the AICPA would be one of a number of expert organizations knighted by the PCAOB to provided expertise to the process."

KNOWLEDGE, SKILL, EXPERTISE AND ENERGY

The AICPA indeed is hopeful of being knighted. "We certainly will be involved in commenting and providing input through whatever appropriate means to the PCAOB," Ezzell says. "It will be up to them to decide how to use it."

Many in the profession feel that the AICPA's historical expertise in standards setting is too big for the PCAOB to ignore.

"There may be benefits to having a more objective standard setter, whose allegiances perhaps are more closely aligned with the investing public, rather than the practice community," says Bill Holder, CPA, a part-time member of the Governmental Accounting Standards Board and an accounting professor at the University of Southern California.

"But you would be hard-pressed to find a deeper reservoir of knowledge, skill and expertise to address and resolve challenges that arise in practice, than those represented by the AICPA," he says. If the PCAOB were to close itself from those resources, he says, 'that has to adversely affect the standards setting process."