(The news featured below is a selection from the news covered in Federal Securities Law Reporter, which is distributed to subscribers of SEC Today.)

Chamber of Commerce Offers Action Plan To Strengthen Auditing Profession

The Chamber of Commerce has published an action plan to support the long-term viability of the auditing profession. The plan calls for a means of insuring the profession against overlitigation and unfair enforcement, clarification of the PCAOB's standards and increased competition through an expansion beyond the current Big Four accounting firms. The Chamber believes it is important to act now to prevent a crisis and bring stability back to the auditing profession.

The Chamber explained that auditing firms are required by the states and by ethical rules to operate as partnerships that do not accept outside equity capital. The actions of a few bad employees or one ill-considered indictment can result in a situation like Andersen, in which 28,000 of its U.S. employees lost their jobs. The Chamber said that the legal risks are so uncertain that the profession is effectively uninsurable. One answer may be tort reform, but absent that measure, the Chamber suggested other initiatives.

First, the Chamber said that auditor's procedures for detecting fraud and the limits of their responsibility must be better defined. Auditors cannot eliminate the risk of fraud, but are inevitably blamed when fraud occurs. A clean audit opinion is no guarantee that no fraud has occurred, according to the Chamber. The Chamber called on the PCAOB to adopt a safe harbor standard for fraud detection that defines the nature and extent of the procedures that a firm must apply to detect fraud. This safe harbor would protect auditing firms from legal liability when the procedures have reasonably been performed.

The Chamber also supports the creation of an alternative dispute resolution process for audits. It is not reasonable to expect juries and nonexpert judges to evaluate accounting judgments and auditing methodologies, the Chamber explained. The auditing profession, the PCAOB and Congress should create a civil structure for resolving accounting disputes in which the issues are decided by experts. Alternative dispute resolution may not be the answer for large and complex class action suits, but the Chamber is convinced that all audit disputes should not end up in the courts. The Chamber also called upon Congress to rein in the use of indictments against audit firms and to establish clear rules for when enterprises may be criminally indicted.

The PCAOB should provide guidance under Auditing Standard No. 2 on when "enough is enough" with respect to the auditing of internal controls, according to the Chamber. The Chamber maintains that the PCAOB has played a large role in creating the circumstances for overauditing and should address that problem by clarifying AS2. The PCAOB should provide a safe harbor and give auditors and their clients an element of predictability and freedom from second-guessing.

The Chamber acknowledged that expanding the Big Four is a difficult task, but called on the SEC, the PCAOB, the NYSE, Nasdaq and FASB to make long-term expansion a high priority. The regulators should support policies that help the profession become insurable since risk management is a huge barrier to growth for any firm that seeks to audit public company clients. Accounting standards should be clarified and streamlined so that it is less expensive for firms to stay current with the latest pronouncements. The Chamber called on FASB to address the problem of "infinite complication" in accounting rules which makes it difficult for the most well-intentioned of accountants to keep up.

The Chamber also urged the SEC to end "speech GAAP" in which the staff announces policy changes without public notice and comment. All accounting firms, not just the Big Four, should be included in the debates about new rules and interpretations, the Chamber added. Finally, all parties should encourage public companies to use firms other than the Big Four for some of their work.