[Federal Register Volume 72, Number 210 (Wednesday, October 31, 2007)]
[Notices]
[Pages 61709-61713]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-21402]


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DEPARTMENT OF THE TREASURY


Discussion Outline for Consideration by the Advisory Committee on 
the Auditing Profession

AGENCY: Office of the Under Secretary for Domestic Finance, Treasury.

ACTION: Request for Comments.

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SUMMARY: The Department of the Treasury's Advisory Committee on the 
Auditing Profession is soliciting public comment on the discussion 
outline prepared at the direction of and in consultation with the 
Advisory Committee's Co-Chairs, Arthur Levitt, Jr. and Donald T. 
Nicolaisen. The discussion outline includes a list of issues and 
potential consideration points that the Advisory Committee may 
evaluate.

DATES: Comments should be received by November 30, 2007.

ADDRESSES: The public is invited to submit comments with the Advisory 
Committee by any of the following methods:

Electronic Comments

     Use the Department's Internet submission form (http://www.treas.gov/offices/domestic-finance/acap/comments); or

Paper Comments

     Send paper comments in triplicate to Advisory Committee on 
the Auditing Profession, Office of Financial Institutions Policy, Room 
1418, Department of the Treasury, 1500 Pennsylvania Avenue, NW., 
Washington, DC 20220.

    In general, the Department will post all comments on its Web site 
(http://www.treas.gov/offices/domestic-finance/acap/comments) without 
change, including any business or personal information provided such as 
names, addresses, e-mail addresses, or telephone numbers. The 
Department will also make such comments available for public inspection 
and copying in the Department's Library, Room 1428, Main Department 
Building, 1500 Pennsylvania Avenue, NW., Washington, DC 20220, on 
official business days between the hours of 10 a.m. and 5 p.m. Eastern 
Time. You can make an appointment to inspect comments by telephoning 
(202) 622-0990. All comments, including attachments and other 
supporting materials, received are part of the public record and 
subject to public disclosure. You should submit only information that 
you wish to make available publicly.

FOR FURTHER INFORMATION CONTACT: Kristen E. Jaconi, Senior Policy 
Advisor to the Under Secretary for Domestic Finance, Department of the 
Treasury, Main Department Building, 1500 Pennsylvania Avenue, NW., 
Washington, DC 20220, at (202) 927-6618.

SUPPLEMENTARY INFORMATION: At the request of the Co-Chairs of the 
Advisory Committee on the Auditing Profession, the Department is 
publishing this release soliciting public comments on the issues that 
the Advisory Committee proposes to consider.
    The Advisory Committee was officially established on July 3, 2007 
with the filing of its Charter with Congress. The Charter provides that 
the Advisory Committee's objective is to provide informed advice and 
recommendations to the Secretary of the Treasury and the Department on 
the sustainability of a strong and vibrant auditing profession. The 
Advisory Committee adopted By-Laws and Operating Procedures on October 
15, 2007. The Charter and By-Laws and Operating Procedures direct the 
Advisory Committee to consider the following areas of inquiry:
     The auditing profession's ability to cultivate, attract, 
and retain the human capital necessary to meet developments in the 
business and financial reporting environment and ensure audit quality 
for investors;
     Audit market competition and concentration and the impact 
of the independence and other professional standards on this market and 
investor confidence; and
     The organizational structure, financial resources, and 
communication of the auditing profession.
    The Charter also directs the Advisory Committee to work with a view 
to furthering the mission of the Department, as the steward of the 
economic and financial systems of the United States, to promote and 
encourage the conditions for prosperity and stability in the United 
States and the rest of the world and to predict and prevent, to the 
extent possible, economic and financial crises.
    The Advisory Committee considered the discussion outline at its 
first public meeting held on October 15, 2007. The Co-Chairs of the 
Advisory Committee have asked the Department to publish the discussion 
outline for public comment. The full text of the discussion outline is 
attached as an Appendix and also may be found on the Web page of the 
Advisory Committee at http://www.treas.gov/offices/domestic-finance/acap/index.shtml. The discussion outline identifies in general terms 
the issues and consideration points that the Advisory Committee may 
evaluate. All interested parties are invited to submit their views in 
writing, on any or all of the subjects identified, whether some 
subjects identified should not be considered for any reason (such as to 
conserve resources on other, more critical subjects, or because of the 
limited length of the Advisory Committee's term) or on any other matter 
relating to the current sustainability of a strong and vibrant auditing 
profession that the Advisory Committee should consider addressing.
    General Request for Comment: Any interested person wishing to 
submit written comments on any aspect of the discussion outline, as 
well as on other matters relating to the Advisory Committee's work, is 
requested to do so. This notice is published at the request of the Co-
Chairs of the Advisory Committee. The Advisory Committee will consider 
all comments received.

    Dated: October 24, 2007.
Taiya Smith,
Executive Secretary.

Appendix--Discussion Outline for Consideration by the Advisory 
Committee on the Auditing Profession

Over-Arching Principles

     The work and recommendations of the Advisory Committee on 
the Auditing Profession should be designed to further the mission of 
the Department of the Treasury to promote and encourage prosperity and 
stability by both improving the quality of the audit process and audits 
and ensuring the viability and resilience of the public company 
auditing profession.
     Enhancing the quality of the audit process and audits 
should contribute to the viability and resilience of the public company 
auditing profession.
     Confidence in the public company auditing profession is 
enhanced and strengthened when the profession operates in a manner 
transparent to investors and market participants, and adopts governance 
best practices.
     The quality of the audit process and audits is 
accomplished when the credibility of the audit meets the needs

[[Page 61710]]

of investors and increases as the following objectives are achieved.
    [cir] The audit process and audits should contribute to investor 
confidence in the financial statements by ensuring that the financial 
statements are reliable, complete, and timely.
    [cir] The audit process and audits should contribute to the 
transparency of financial reporting for preparers and investors.
    [cir] Audits should lower the cost of capital to companies that are 
audited (as a group and over time).
    [cir] The benefits of the audit process and audits to investors, 
preparers, and the marketplace should outweigh the costs of the audit 
process and audits to preparers and their owners.
    [cir] Investors and the marketplace should understand the purposes, 
limitations, and results of the audit process and audits, and have 
confidence in the credibility of the audit provided and the quality of 
the services performed.
    [cir] Material financial frauds are detected and reported in a 
timely fashion adding to investor confidence in the reliability of the 
audit process and audits.
     The viability and resilience of the public company 
auditing profession are enhanced when a high quality audit is delivered 
to investors and the following objectives are achieved.
    [cir] The public company auditing profession should attract and 
develop employees adequately prepared to perform high quality audits.
    [cir] The public company auditing profession should be financially 
and structurally sound.
    [cir] The public company auditing profession should operate under 
standards of independence necessary to maintain investor confidence and 
the quality of audit processes and audits.
    [cir] The audit market benefits from a competitive and innovative 
population of auditing firms.
    1. Consideration of Prior Recommendations.
    1.1. Consider the recommendations of past committees studying the 
auditing profession, including:
    1.1.1. Commission on Auditors' Responsibilities (``Cohen 
Commission'') (1978).
    1.1.2. National Commission on Fraudulent Financial Reporting 
(``Treadway Commission'') (1987).
    1.1.3. Panel on Audit Effectiveness (``O'Malley Panel'') (2000).
    2. Human Capital and Its Impact on Audit Quality.
    2.1. Consider whether the increase and enrichment of the pool of 
human capital in the public company auditing profession can improve 
audit quality.
    2.2. Identify and consider potential areas of inquiry and courses 
of action:
    2.2.1. Recruitment and training.
    2.2.2. Retention, professional advancement, and alternatives.
    2.2.3. Education.
    2.2.3.1. Undergraduate.
    2.2.3.2. Graduate.
    2.2.3.3. Continuing education.
    2.2.3.4. Relationship between continuing education and professional 
development.
    2.3. Consider the recruitment, training, retention of accounting 
graduates.
    2.3.1. Recruitment.
    2.3.1.1. Demand for accountants predicted to grow 18-26% through 
2014 (U.S. Bureau of Labor Statistics).
    2.3.1.2. Increasing level of retirements and lack of commensurate 
replacement may portend a shortage of qualified accountants.
    2.3.1.3. Enrollments in accounting programs and accounting 
graduates up 19% from 2000 to 2004. Increase of 9% to 40,400 Bachelor's 
degree recipients from 2003 to 2004.
    2.3.1.4. Women were more than half of the 2006 accounting 
graduates. In 2004, minorities accounted for 23% of accounting 
graduates. Women account for 19% of all auditing firm partners. 
Minorities held 13.5% and caucasian women held 32.4% of all ``officials 
and managers'' positions in the accounting industry; 7% of auditing 
firms, CPAs are minorities (AICPA).
    2.3.1.5. Consider the actions that can be undertaken to seek to 
ensure that there is a sufficient number of graduates to meet the 
growing demand for auditing services.
    2.3.1.6. Consider the actions that can be undertaken to seek to 
ensure the attraction of a diverse group of individuals to the auditing 
profession.
    2.3.1.7. Consider and compare the competitiveness of auditing 
industry recruitment with other industries and disciplines who recruit 
similar students and the reasons for the success of some of these other 
industries and disciplines. Consider the compensation structure in 
these other industries and disciplines.
    2.3.2. Training and supervision, and evaluation; continuing 
education.
    2.3.2.1. The largest auditing firms offer training programs to 
employees as a supplement to undergraduate and post-graduate education.
    2.3.2.2. Consider whether and how training can be enhanced to seek 
to ensure high quality audits.
    2.3.2.3. Consider whether and how training can be enhanced to 
foster recruitment, retention, and professional advancement.
    2.3.2.4. Consider whether high ethical standards are incorporated 
into training and employee evaluations.
    2.3.2.5. Consider whether employees are trained and evaluated to 
make decisions that ensure the representational faithfulness of the 
financial statements.
    2.3.2.6. Consider the impact of the size of an auditing firm and 
its ability to recruit, retain, and offer training to accounting 
graduates on audit quality.
    2.3.2.7. Consider whether and how continuing education programs can 
be enhanced to seek to ensure high-quality audits.
    2.3.2.8. Consider whether and how continuing education can be 
enhanced to foster recruitment, retention, and professional 
advancement.
    2.3.2.9. Consider how the use of the Internet and other 
technological developments can be used to enhance training and 
continuing education.
    2.3.2.10. Consider whether and how training and continuing 
education relating to International Financial Reporting Standards and 
international auditing standards need to be enhanced.
    2.3.2.11. Consider whether and how training and continuing 
education relating to financial reporting tools and developments, such 
as eXtensible Business Reporting Language, can be enhanced.
    2.3.2.12. Consider whether improved supervision at the auditing 
firms is needed to ensure high-quality audits. Consider ways to foster 
improved supervision, if needed. Consider whether and how training and 
continuing education can be enhanced to provide accountants with 
improved management and supervisory skills as they reach the 
supervisory levels.
    2.3.2.13. Consider the processes by which auditing firms train and 
develop employees for the appropriate auditing assignments.
    2.3.2.14. Consider whether the Public Company Accounting Oversight 
Board should have a role in enhancing training, supervision, and 
continuing education, and, if so, what that role should be. Consider 
interviewing the PCAOB regarding its inspection process.
    2.3.3. Retention.
    2.3.3.1. AICPA survey: 15-20% turnover rates at the largest 
auditing firms; lower turnover rates at smaller firms.
    2.3.3.2. Consider the ways auditing firms can improve retention of 
quality partners and employees. Consider the reasons accountants are 
leaving the

[[Page 61711]]

profession. Consider whether the public company auditing profession is 
viewed as providing a challenging and fulfilling work environment. 
Consider whether the public company auditing profession is respected 
and whether the degree of respect impacts employee retention. Consider 
whether and how liability risk impacts partner and employee retention. 
Consider whether and how the auditor independence standards impact 
partner and employee retention. Consider whether the auditing firms are 
investing in technologies that can improve employee retention and 
experience. Consider the compensation structure of auditors vis-
[agrave]-vis other financial services industry professionals.
    2.4. Consider the state of accounting education and CPA licensing 
requirements.
    2.4.1. Consider the accounting curriculum.
    2.4.1.1. Multi-disciplinary approach vs. technical approach.
    2.4.1.1.1. Debate since the late 1950s.
    2.4.1.1.2. Consider whether the accounting curriculum should focus 
on technical accounting standards or also reflect to a greater degree a 
multi-disciplinary approach focusing on business, finance, law, and 
ethics and other areas.
    2.4.1.1.3. Consider what approach is more likely to ensure high 
quality audits.
    2.4.1.1.4. Consider what approach teaches high ethical standards.
    2.4.1.1.5. Consider whether there is a role for increased clinical 
education at the undergraduate or graduate level. Consider whether the 
current accounting curriculum prepares accounting graduates for their 
first positions in the auditing industry.
    2.4.1.1.6. Consider the impact on the curriculum of the potential 
acceptance of International Financial Reporting Standards and 
international auditing standards.
    2.4.1.1.7. Consider the impact on the curriculum of the Internet 
and technological developments, such as eXtensible Business Reporting 
Language.
    2.4.1.2. The 150-hour requirement, the 120-hour requirement, and 
the professional school of accountancy.
    2.4.1.2.1. In 1998, the American Institute of Certified Public 
Accountants approved the 150-hour requirement for application for AICPA 
membership, reasoning the extra year or 30 hours of post-graduate 
education should replace the 120-hour requirement, given accounting 
complexity.
    2.4.1.2.2. 48 of 54 states and jurisdictions have adopted the 150-
hour requirement, thus making 150 hours mandatory to be licensed as a 
CPA. Yet many states test at the 120-hour level.
    2.4.1.2.3. Consider the costs and benefits of the 150-hour 
requirement.
    2.4.1.2.4. Consider the impact of the 150-hour requirement upon the 
recruitment of undergraduates as accounting majors.
    2.4.1.2.5. Consider whether the 150-hour requirement has improved 
audit quality.
    2.4.1.3. Academics and practice.
    2.4.1.3.1. Some observers have suggested that much academic 
research focuses on social science research rather than the skills and 
judgments needed to ensure high quality audits. Consider the possible 
``schism'' between the academic and practice communities.
    2.4.1.3.2. Consider what ``common body of knowledge'' accounting 
students should acquire.
    2.4.1.3.3. Consider whether accounting academics need to be 
encouraged to undertake a more ``practice-oriented'' approach, 
including more practice-oriented research.
    2.4.1.3.4. Consider whether professional training programs and 
continuing education better provide the additional information and 
perspective beyond technical skill and academic education that can 
assist in developing the judgment and other practical skills necessary 
for high-quality audits.
    2.4.2. Consider the status of accounting faculty.
    2.4.2.1. Shortage of faculty PhDs.
    2.4.2.1.1. In 1967, the Association to Advance Collegiate Schools 
of Business decided that the doctorate was the terminal degree needed 
to teach accounting in the collegiate setting. To maintain the AACSB 
accreditation, 50% of faculty must have doctorates in accounting.
    2.4.2.1.2. One-half of accounting faculty is eligible to retire in 
the next few years: One-third of accounting faculty is 60 or older; 
one-half is 55 or older.
    2.4.2.1.3. Consider the reasons for this potential accounting 
faculty shortage, including doctoral program recruitment and 
compensation.
    2.4.2.1.4. Consider ways to increase the number of accounting 
faculty. Consider the AACSB accreditation requirements.
    2.4.2.2. The impact of an increasingly complex and globalized 
financial reporting environment on accounting faculty.
    2.4.2.2.1. Consider ways to ensure that accounting faculty is able 
to prepare students to undertake high quality audits in a complex 
financial reporting environment. Consider ways to encourage faculty to 
keep apprised of financial reporting and auditing profession 
developments.
    2.4.2.2.2. Consider the impact of a more multi-disciplinary 
approach to the accounting curriculum.
    2.4.2.2.3. Consider the impact of International Financial Reporting 
Standards and international auditing standards on faculty resources and 
requirements.
    2.4.2.2.4. Consider the impact of the potential increased use of 
clinical programs on faculty resources and requirements.
    2.4.2.2.5. Consider the benefits of and how to balance the class 
room education experience for students between theory and practical 
experience.
    2.4.3. Consider the adequacy of CPA licensing requirements.
    2.4.3.1. Consider and understand the role of the State Boards of 
Accountancy in licensing, education, and enforcement.
    2.4.3.2. Consider the education requirements.
    2.4.3.3. Consider the CPA examination.
    2.4.3.4. Consider the professional experience requirements.
    2.4.3.5. Consider the continuing education requirements.
    3. The Auditing Firm and the Audit: Organization, Financial 
Resources, and Communication.
    3.1. Consider the state licensing regime.
    3.1.1. Consider the impact of a multi-state licensing regime on 
audit quality.
    3.1.2. All 50 states and 5 territories through state licensing 
boards license certified public accountants. State boards set 
requirements for moral character, higher education, continuing 
education, experience, and examination for licensure as a CPA. State 
boards set ethical and continuing practice standards and possess 
disciplinary powers.
    3.1.3. Consider the costs and benefits of a multi-state licensing 
regime.
    3.1.4. Consider whether the Uniform Accountancy Act, promulgated by 
the American Institute of Certified Public Accountants and the National 
Association of State Boards of Accountancy and aiming to increase 
licensing uniformity, addresses the inefficiencies of multi-state 
licensing.
    3.1.5. Consider the relationship between the multi-state licensing 
regime and the Public Company Accounting Oversight Board.
    3.2. Consider whether a professional qualification or other 
mechanism for public company auditing firms, in addition to 
registration with the Public Company Accounting Oversight Board, should 
be established similar to what

[[Page 61712]]

currently exists for individuals with CPA licensing.
    3.3. Consider whether and, if so, how the Public Company Accounting 
Oversight Board can enhance qualification and related mechanisms for 
public company auditing firms as a result of its registration, 
inspection, or disciplinary regime.
    3.3.1. Examining qualifications of individuals or firms.
    3.3.2. Training or remediation.
    3.3.3. Monitoring and supervision.
    3.4. Consider insurability and liability risk.
    3.4.1. Liability.
    3.4.1.1. A September 2006 European Commission study reported that 
the total costs of judgments, settlements, legal fees, and related 
expense for U.S. audit practices of the largest accounting firms had 
risen to $1.3 billion in 2004, or 14.2% of revenue, up from 7.7% in 
1999.
    3.4.1.2. Consider the impact of auditor liability risk on human 
capital, the nature of the audit process, and the conduct of audits, 
including the use of judgment and possibility of ``defensive 
auditing,'' and other aspects of audit quality, including whether 
potential liability increases audit quality.
    3.4.1.3. Consider major financial frauds and how auditor behavior 
and/or audit failure has contributed to increased liability exposure 
and costs.
    3.4.1.4. Consider whether any potential changes should be 
considered in auditor liability regimes.
    3.4.1.5. Consider how altering auditor liability regimes would 
impact audit quality.
    3.4.1.6. Consider how altering auditor liability regimes would 
impact investors.
    3.4.1.7. Consider the costs and benefits of various auditor 
liability regimes (and corresponding disclosure regimes) to investors 
and the marketplace (including issues of moral hazard).
    3.4.2. Status of insurability.
    3.4.2.1. Smaller auditing firms are generally able to purchase 
commercial insurance to cover professional liability claims. Smaller 
firms can purchase insurance through American Institute of Certified 
Public Accountants, which established the AICPA Professional Liability 
Insurance Program in 1967, currently serving over 24,000 auditing 
firms.
    3.4.2.2. The largest auditing firms are unable to purchase 
commercial insurance directly in the marketplace and must use captive 
insurance funds.
    3.4.2.3. Understand the insurance and risk management practices of 
the larger auditing firms in the United States.
    3.4.2.4. Consider how major audit failures have impacted the 
insurability of the auditing firms.
    3.4.2.5. Consider the impact of potential litigation exposure on 
audit quality.
    3.4.2.6. Consider whether auditing firms in the United States 
should be required to maintain a certain level of insurance.
    3.4.2.7. Consider the reasons why the largest auditing firms are 
prevented from being offered commercial insurance.
    3.4.2.8. Consider how altering insurance structures or regimes 
would impact audit quality.
    3.4.2.9. Consider the costs and benefits of various insurance 
structures and regimes to investors and the marketplace (including 
issues of moral hazard).
    3.5. Consider organizational structure.
    3.5.1. Most auditing firms in the United States are organized as 
limited liability entities, the largest being limited liability 
partnerships. The largest auditing firms have global networks of 
affiliates.
    3.5.2. Consider the impact these limited liability entities have on 
the quality of corporate governance, including management succession, 
oversight, compensation, and audit quality.
    3.5.3. State law and independence standards may prohibit investment 
of outside capital, typically limiting capital investment and 
partnership interests to the auditing partners themselves.
    3.5.4. Consider whether alternative structures exist for auditing 
firms beyond the limited liability entity model and whether and how any 
such structure could enhance audit quality.
    3.5.5. Consider how the global network of affiliate structure 
impacts audit quality.
    3.5.6. Consider whether and how consistency is ensured across 
auditing firms. Consider whether there is consistency between auditing 
firms' global affiliate structure and their integrated global marketing 
activities and practice activities. Consider whether and how any such 
inconsistencies within a network impact audit quality.
    3.5.7. Consider whether there is an approach to a global structure 
and organization that could lead to enhanced audit quality. Consider 
the feasibility of such a structure and any regulatory or financial 
consequences. Consider how liability and insurance issues relate to 
global structuring issues.
    3.5.8. Consider how the varying degree of quality in financial 
reporting and auditing and regulatory and enforcement regimes impact 
organizational structure and capital resources.
    3.5.9. Consider how the potential acceptance of International 
Financial Reporting Standards in the United States and the greater use 
of fair value and mark-to-model accounting will impact the largest 
auditing firms' network of affiliates.
    3.6. Consider transparency and governance.
    3.6.1. Auditing firms provide the Public Company Accounting 
Oversight Board with proprietary information. The European Union 
recently adopted reporting requirements (to be effective in June 2008) 
for public company auditors relating to issues such as a firm's legal 
structure and ownership, governance, and internal quality control 
system.
    3.6.2. Consider what, if any, governance failures at the auditing 
firms occurred and contributed to failures in the provision of audit 
services and non-attest services.
    3.6.3. Consider to what extent, if any, auditing firms should 
disclose to the public their internal organization, governance, and 
financial resources and whether and how such a practice could enhance 
audit quality.
    3.6.4. Consider whether and, if so, there should be public 
participation in firm governance, for example through an advisory board 
or ombudsman or other mechanism, and whether and how such a mechanism 
could enhance audit quality.
    3.6.5. Consider whether the auditing firms, themselves, should 
prepare audited GAAP financial statements for filing with the Public 
Company Accounting Oversight Board or the public.
    3.6.6. Consider how increased transparency and strengthened 
governance affects audit quality.
    3.6.7. Consider how state laws and auditor independence standards 
impact auditing firm governance.
    3.6.8. Consider whether and how governance matters impact issues 
and conclusions regarding liability and insurance.
    3.7. Auditor responsibility for fraud detection and improving 
communication with investors.
    3.7.1. Examine the auditor's responsibility for fraud detection and 
whether it is resulting in enhanced investor confidence in the 
reliability of the financial statements.
    3.7.2. The standard auditor report consists of a standardized four 
paragraphs stating management and auditor responsibilities, the nature 
of

[[Page 61713]]

the audit, the auditor's opinion on the financial statements, and, if 
the audited company is subject to the Sarbanes-Oxley Act, the 
effectiveness of internal controls.
    3.7.3. Consider whether the auditor report should be more 
descriptive so as to improve communication with the public and investor 
community.
    3.7.4. Consider whether and, if so, how the auditor report could 
more clearly define the role of the auditor vis-a-vis financial 
statements.
    3.7.5. Consider the role of the auditor in the audit.
    3.7.6. Consider the expectations of investors and the marketplace 
relating to the auditor report and the audit. Consider whether and, if 
so, what sort of fraud investors and the marketplace expect auditors to 
detect.
    3.7.7. Consider the impact, if any, of changes in auditor reports 
on audit quality.
    4. Auditing Profession Structure: Competition, Concentration, 
Independence, and Other Professional Standards.
    4.1.1. According to a 2004 GAO Report, the largest auditingfirms 
audit over 78% of U.S. public companies and 99% of public company 
revenues. According to a 2004 J.D. Power & Associates survey, about one 
of every eight public companies retained three or more of the largest 
auditing firms for attest and non-attest work.
    4.1.2. Examine whether there should be fundamental changes made in 
who pays the audit fee to the auditor.
    4.1.3. Consider the impact on the structure of the public company 
auditing profession of the following:
    4.1.3.1. Auditor independence standards.
    4.1.3.1.1. Consider how the auditor independence standards impact 
audit quality, audit market competition, and the pool of human capital.
    4.1.3.1.2. Consider whether there is an ``appropriate balance'' 
between the auditing services and the non-attest services that auditing 
firms are providing today.
    4.1.3.1.3. Consider how auditing firms' employee assignment process 
relating to auditing services and non-attest services impacts the pool 
of human capital.
    4.1.3.2. Mandatory partner and firm rotation.
    4.1.3.2.1. Consider whether and, if so, how mandatory partner 
rotation impacts auditing firms and their ability to ensure audit 
quality.
    4.1.3.2.2. Consider whether mandatory partner rotation impacts both 
the larger and smaller auditing firms in the same way.
    4.1.3.2.3. Examine the benefits and costs of periodic firm 
rotation.
    4.1.3.3. Other professional standards.
    4.1.3.3.1. Consider whether, and, if so, how other professional 
standards or requirements impact the structure of the public company 
auditing profession.
    4.1.3.4. Complexity.
    4.1.3.4.1. Consider whether, and, if so, how the complexity of 
business and financial products affects audit quality, including the 
auditing firms' educational and supervisory roles. Consider whether the 
complexity of business and public companies, along with the 
accompanying financial reporting, accounting, and auditing standards 
prevents auditing firms with fewer resources from entering into the 
larger public company audit space.
    4.1.3.4.2. Consider whether the global convergence of accounting 
standards and the global convergence of auditing standards encourage 
more audit market competition.
    4.1.3.5. Globalization.
    4.1.3.5.1. Consider the relative financial, human resources, and 
geographical capabilities of the largest auditing firms, the mid-size 
auditing firms and the smaller auditing firms.
    4.1.3.5.2. Consider and compare the capabilities of the different 
sizes of auditing firms with the requirements of the large, mid, and 
small capitalization public companies.
    4.1.3.5.3. Consider how the increasing globalization of the capital 
markets affects audit market concentration among the largest auditing 
firms who have global networks of affiliates.
    4.1.3.5.4. Consider whether larger auditing firm resources are 
necessary for a high quality audit for larger, international companies.
    4.1.3.5.5. Consider the ability of certain firms to carve out 
niches among certain multi-national sectors.
    4.1.3.5.6. Consider how the potential acceptance of International 
Financial Reporting Standards and international auditing standards will 
impact audit market competition.
    4.1.4. Consider how audit market concentration impacts audit 
quality.
    4.1.4.1. Consider the reasons for public companies' seeking new 
auditors.
    4.1.4.2. Consider whether auditing firms are competing for services 
based on audit quality.
    4.1.4.3. Consider the bases on which auditing firms compete today 
in the United States and internationally, including an assessment of 
audit fee changes when auditors compete for new audits.
    4.1.5. Consider the potential consequences of a larger auditing 
firm failure.
    4.1.5.1. Consider the sort of risks a larger auditing firm failure 
poses to the marketplace and investors.
    4.1.5.2. Consider the causes of major audit failures and steps that 
could be taken to prevent their reoccurrence.
    4.1.5.3. Consider whether and, if so, how, securities and auditing 
firm regulators should attempt to mitigate the risk or the impact of a 
larger auditing firm failure.
    4.1.6. Consider ways to increase audit market competition.
    4.1.6.1. Consider the impact of auditing firm mergers on industry 
competition and whether a public policy change with respect to a lack 
of competition is warranted.
    4.1.6.2. Consider whether regulators are now faced with a ``Too Big 
to Fail'' public policy, and if so, consider whether public policy 
changes are warranted and the nature of those changes.
    4.1.6.3. Consider how greater auditor choice can be fostered in the 
marketplace by the public and private sectors.
    4.1.6.4. Consider whether there are public company sectors where 
audit market choice is growing.
    4.1.6.5. Consider the ability of certain auditing firms to create 
niche-markets.
    4.1.6.6. Consider how private sector participants, such as 
underwriters and lawyers, impact audit market choice.

 [FR Doc. E7-21402 Filed 10-30-07; 8:45 am]
BILLING CODE 4811-42-P