Under Secretary for Domestic Finance
Robert K. Steel
Welcome and Introductory Remarks Before the
Initial Meeting of the Department of the Treasury’s
Advisory Committee on the Auditing Profession

Washington - Good morning. Welcome to the Department of the Treasury. Thank you for being here today at the initial meeting of the Advisory Committee on the Auditing Profession. I want to extend my gratitude as well as that of Secretary Paulson and the Department to the members of the Committee. We appreciate the generosity of your service.

I want to thank, in particular, the Co-Chairs of the Committee, former Securities and Exchange Commission Chairman Arthur Levitt, Jr. and former SEC Chief Accountant Donald T. Nicolaisen. The high regard in which these two gentlemen are held is reflected in the willingness of the distinguished individuals gathered around this table to serve as members of this Committee.

As many of you know, this Committee stems from the capital markets competitiveness initiatives that Secretary Paulson has spearheaded. Nearly a year ago, the Secretary delivered a speech on the need to maintain and enhance

U.S.

capital markets competitiveness. He specifically pointed out the sustainability of the auditing profession as a vital component to this competitiveness.[1]

The link between the auditing profession and capital markets competitiveness was established during the adoption of the federal securities laws almost 75 years ago. To assist in restoring investor confidence and encouraging capital development after the 1929 crash, the auditing profession, itself, lobbied for independent audits of financial statements as part of the legislative reforms Congress was considering.[2]

Agreeing with the profession, Congress mandated in the federal securities laws independently audited financial statements for all public companies. Certifying financial statements, the independent auditor would help accomplish the aims of the Securities Act of 1933 "to restore the confidence of the prospective investor in his ability to select sound securities; …and to bring into productive channels of industry and development capital which has grown timid."[3]

Congress had decided then to bestow on the public company auditor a critical role of trust, integral to investor confidence, integral to the flow of capital. This trust clearly broke down at the beginning of this century when public company accounting scandals challenged the credibility of the auditing profession. Congress, considering what would eventually become the Sarbanes-Oxley Act of 2002, harshly reminded the profession: "[T]he franchise given to public accountants by the securities laws is conditional; it comes in return for the CPA's faithful assumption of a public trust."[4]

To restore credibility in the profession, the Sarbanes-Oxley Act mandated several major changes, the most prominent being the move from self-regulation and peer review to a system of federal oversight: The Public Company Accounting Oversight Board, whose creation has been termed the "centerpiece" [5] of the Act, now registers and inspects all public company auditing firms and sets and enforces auditing standards. The Sarbanes-Oxley Act also enhanced auditor independence standards, required mandatory auditing firm partner rotation, and strengthened the audit committee's role in monitoring the auditor and the audit process.

Five years have passed since the passage of this landmark legislation. The profession continues to adapt to these changes as it reasserts its role in enhancing investor confidence and the competitiveness of our capital markets. At the same time, the profession faces considerable challenges.

Secretary Paulson outlined these challenges in his competitiveness speech last year. I repeat his precise words:

The Department has charged the Committee with developing recommendations taking into consideration the issues impacting the sustainability of the auditing profession, including those raised by these questions. Neither the difficulty nor the importance of this task should be underestimated.

Again, we are grateful for your service. Secretary Paulson and the Department await your recommendations. I now yield the floor to the Co-Chairs for their meeting. Thank you.

[1] Henry M. Paulson, Jr., Secretary of the U.S. Department of the Treasury, Remarks on the Competitiveness of the U.S. Capital Markets Before the Economic Club of New York (Nov. 20, 2006).

[2] Gary John Previts & Barbara Dubis Merino, A History of Accountancy in the United States: The Cultural Significance of Accounting 723 (1998).

[3] S. Rep. No. 47, 73^rd Cong., 1^st Sess. 1 (Apr. 17, 1933).

[4] S. Rep. No. 205, 107^th Cong., 2^nd Sess. 6 (July 3, 2002).

[5] Douglas R. Carmichael, The PCAOB and the Social Responsibility of the Independent Auditor, Accounting Horizons Vol. 18, No. 2, 127-33 (June 2004).

[6] Henry M. Paulson, Jr., Secretary of the U.S. Department of the Treasury, Remarks on the Competitiveness of the U.S. Capital Markets Before the Economic Club of New York (Nov. 20, 2006).



	October 15, 2007 hp-610 Under Secretary for Domestic Finance Robert K. Steel Welcome and Introductory Remarks Before the Initial Meeting of the Department of the Treasury’s Advisory Committee on the Auditing Profession Washington - Good morning. Welcome to the Department of the Treasury. Thank you for being here today at the initial meeting of the Advisory Committee on the Auditing Profession. I want to extend my gratitude as well as that of Secretary Paulson and the Department to the members of the Committee. We appreciate the generosity of your service. I want to thank, in particular, the Co-Chairs of the Committee, former Securities and Exchange Commission Chairman Arthur Levitt, Jr. and former SEC Chief Accountant Donald T. Nicolaisen. The high regard in which these two gentlemen are held is reflected in the willingness of the distinguished individuals gathered around this table to serve as members of this Committee. As many of you know, this Committee stems from the capital markets competitiveness initiatives that Secretary Paulson has spearheaded. Nearly a year ago, the Secretary delivered a speech on the need to maintain and enhance U.S. capital markets competitiveness. He specifically pointed out the sustainability of the auditing profession as a vital component to this competitiveness.[1] The link between the auditing profession and capital markets competitiveness was established during the adoption of the federal securities laws almost 75 years ago. To assist in restoring investor confidence and encouraging capital development after the 1929 crash, the auditing profession, itself, lobbied for independent audits of financial statements as part of the legislative reforms Congress was considering.[2] Agreeing with the profession, Congress mandated in the federal securities laws independently audited financial statements for all public companies. Certifying financial statements, the independent auditor would help accomplish the aims of the Securities Act of 1933 "to restore the confidence of the prospective investor in his ability to select sound securities; …and to bring into productive channels of industry and development capital which has grown timid."[3] Congress had decided then to bestow on the public company auditor a critical role of trust, integral to investor confidence, integral to the flow of capital. This trust clearly broke down at the beginning of this century when public company accounting scandals challenged the credibility of the auditing profession. Congress, considering what would eventually become the Sarbanes-Oxley Act of 2002, harshly reminded the profession: "[T]he franchise given to public accountants by the securities laws is conditional; it comes in return for the CPA's faithful assumption of a public trust."[4] To restore credibility in the profession, the Sarbanes-Oxley Act mandated several major changes, the most prominent being the move from self-regulation and peer review to a system of federal oversight: The Public Company Accounting Oversight Board, whose creation has been termed the "centerpiece" [5] of the Act, now registers and inspects all public company auditing firms and sets and enforces auditing standards. The Sarbanes-Oxley Act also enhanced auditor independence standards, required mandatory auditing firm partner rotation, and strengthened the audit committee's role in monitoring the auditor and the audit process. Five years have passed since the passage of this landmark legislation. The profession continues to adapt to these changes as it reasserts its role in enhancing investor confidence and the competitiveness of our capital markets. At the same time, the profession faces considerable challenges. Secretary Paulson outlined these challenges in his competitiveness speech last year. I repeat his precise words: "Given the importance of accounting to our financial system, is there enough competition?" "Will our reformed accounting system produce the high-quality audits and attract the talented auditors we need?" "Do auditors seek detailed rules in order to focus on technical compliance rather than using professional judgment that could be second-guessed by the PCAOB or private litigants?"[6] The Department has charged the Committee with developing recommendations taking into consideration the issues impacting the sustainability of the auditing profession, including those raised by these questions. Neither the difficulty nor the importance of this task should be underestimated. Again, we are grateful for your service. Secretary Paulson and the Department await your recommendations. I now yield the floor to the Co-Chairs for their meeting. Thank you. [1] Henry M. Paulson, Jr., Secretary of the U.S. Department of the Treasury, Remarks on the Competitiveness of the U.S. Capital Markets Before the Economic Club of New York (Nov. 20, 2006). [2] Gary John Previts & Barbara Dubis Merino, A History of Accountancy in the United States: The Cultural Significance of Accounting 723 (1998). [3] S. Rep. No. 47, 73^rd Cong., 1^st Sess. 1 (Apr. 17, 1933). [4] S. Rep. No. 205, 107^th Cong., 2^nd Sess. 6 (July 3, 2002). [5] Douglas R. Carmichael, The PCAOB and the Social Responsibility of the Independent Auditor, Accounting Horizons Vol. 18, No. 2, 127-33 (June 2004). [6] Henry M. Paulson, Jr., Secretary of the U.S. Department of the Treasury, Remarks on the Competitiveness of the U.S. Capital Markets Before the Economic Club of New York (Nov. 20, 2006).