Summary: Pursuant to a congressional request, GAO reviewed recommendations, made by major study groups over the past two decades, to the accounting profession, focusing on: (1) actions the profession has taken between 1972 and 1995 to improve accounting and auditing standards and the performance of independent audits under federal securities laws; and (2) unresolved issues and their impact on the performance of independent audits, setting of accounting and auditing standards, and efforts to expand the scope of business reporting and audit services.
GAO found that: (1) although the accounting profession and the Securities and Exchange Commission (SEC) have been responsive in making changes to improve financial reporting and auditing, their actions have not been totally effective in resolving some major issues; (2) concerns remain regarding auditor objectivity despite efforts by the accounting profession and SEC to strengthen auditor independence; (3) the accounting profession has issued standards and guidance regarding auditors' roles and responsibilities to close the gap between public and professional expectations of auditor responsibility, especially in regard to detecting and reporting fraud and internal control weaknesses; (4) a voluntary peer review program has improved audit quality control processes and the overall quality of audits; (5) SEC and the accounting profession have made efforts to increase user participation in setting audit standards, and attempts have also been made to improve the quality and timeliness of accounting standards; and (6) the accounting profession and SEC are considering recommendations to create a more comprehensive financial reporting model that would include historical and current cost information as well as more timely and forward-looking information.
