CHAIRMAN LEVITT: It plays out in many different ways in many different forms

As you probably know, whensome of the great tensions between the business community and the accounting standard setters developed, it’s interesting to note how loud the profession is in support of the standard-setting process.

Perhaps one of the greatest debates on that issue took place seven or eight years ago with respect to how to account for stock options, and the FASB stood virtually alone on that issue again because the tension between client interest and a regulatory standard-setting judgment was put into play.

MR. BAZERMAN: Can I make one more quick comment on that issue? In terms of the public interest, the partner we heard from earlier from Arthur Andersen argued that the marketplace would help solve the problem.

What I think is important to note about that comment, which I disagree with, is that that would be true if auditing was only for the client rather than for other public sector purposes as well.

So that the shareholders and the marketplace will react in terms of the incentives of the client but not the many other constituencies that depend on the audit, and that includes the public service that you’re addressing.

COMMISSIONER HUNT: Well, obviously, I want to join with my colleagues in thanking you all for coming andthanking you for your thoughtful comments online title loans Missouri.

I like the characterization, Professor Bazerman, of a state of denial. I think that’s what we have seen, in some instances, that unless we have a smoking gun there’s just no problem with which to deal.

I would hesitate to join in that conclusion because it’s not the place where the Commission has come down, or am I mistaken in my interpretation?

And I think that has been a huge mistake for a long time, and that’s probably one of the reasons we’re sitting here today, because we think it’s a huge mistake to accept that view of reality. It’s just not, in my judgment, accurate. But thank you very much for participating in our deliberations today.

COMMISSIONER CAREY: What I would like to add is more an observation than a question. I am somewhat concerned on the conclusions of some of the panelists are that there does not exist within the accounting industry any possibility of getting an unbiased result, and there’s no such thing as an independent audit.

MR. LOEWENSTEIN: If that’s directed towards me, I wouldn’t characterize my view that an independent audit is impossible, but I would say that the structural arrangements that exist now make it very likely that many audits are not impartial.

So it’s in many different areas that this does play out

And as we’ve been discussing all along, it’s impossible to determine which ones are impartial and which ones are biased, but my colleague, Professor Bazerman, identified three different structural arrangements that ultimately are going to bias some fraction, and maybe a large fraction, to some degree of audits. So —

MR. LOEWENSTEIN: — statement sounds extreme, but, in fact, it’s not really that far off in terms of my own views.

COMMISSIONER CAREY: The instance I would, sort of, posit is that if you have the results that you’ve gleaned from your subjects, if you take instead people who have invested tremendous amounts of work, energy and years into obtaining a professional pedigree, what they have to lose needs to be evaluated, because should they lose that reputation they can never work again.

MR. LOEWENSTEIN: Just one point on that. I think the recent episode of Price Waterhouse Coopers is very instructive on that. As I read the articles in the paper, the partners were informed that their investments were going to come under scrutiny. They were actually given warning, and they didn’t act to divest themselves of the investments in the firms that they were auditing.

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