The GAO follows up on Treadway recommendations.

• Author: Herdman, Robert K.
• Position: General Accounting Office - GAO report on the National Commission on Fraudulent Reporting recommendations

The GAO follows up on Treadway recommendations When the National Commission on Fraudulent Financial Reporting (the Treadway Commission) issued its final report in October of 1987, Congressman John Dingell, chairman of the House Oversight and Investigations Subcommittee, expressed his support for the Treadway recommendations. He also directed the General Accounting Office (GAO) to monitor implementation of those recommendations for one year and report on the status of implementation, together with any GAO recommendations about issues the Subcommittee should pursue. On March 6, 1989, the GAO issued its report, "CPA Audit Quality--Status of Actions Taken to Improve Auditing and Financial Reporting of Public Companies."

As the title suggests, much of the GAO report deals with the accounting profession's initiatives since October of 1987, and it does so in a generally favorable way. The GAO report also has a great deal of commentary on matters that would impact companies more directly. In particular, the GAO: * Endorses the SEC's proposal for a management report on internal controls, and additionally recommends that the SEC require that auditors review and report on management's report. * Apparently accepts the SEC's decision not to amend the Management's Discussion and Analysis (MD&A) rules and endorses an interpretive release to improve compliance with existing rules. * Recommends that the SEC require all public companies to have independent audit committees. Interestingly, the GAO is neutral with respect to the SEC's approved, but still unissued, concepts release on timely auditor reporting on interim financial information. And nowhere in this report does the GAO recommend any legislative initiatives regarding Treadway recommendations for public companies.

Responsibility for internal controls and compliance The accounting profession's new auditors' report is credited by the GAO with significantly improving communications with financial statement users regarding the role of the auditors and management in the preparation of financial statements. The importance of a management report--which the Treadway Commission said should include management's affirmation of its responsibilities for, and an assessment of the effectiveness of, a company's internal controls--continues to be a focal point of discussion, however.

The GAO is a strong believer in the importance of internal controls, compliance with laws and regulations in the preparation of...