Yale School of Management Personal Data Rick Antle

Yale School of Management Personal Data: Rick Antle • Professor of Accounting & Associate Dean , Yale School of Management • Authored several academic publications on auditor independence, auditor incentives and the scope of services • Co-authored the economic analysis for AICPA’s, Serving the Public Interest: A New Conceptual Framework for Auditor Independence • Co-authored “Response to the Independence Standards Board’s Request for Information from the Five Largest Accounting Firms” July 26, 2000 1

Yale School of Management Terms of My Appearance Today • I am here today as an informed and concerned citizen. • I am NOT a representative of any body, nor am I being compensated for my appearance today. • My remarks are confined to the issue of independence and the scope of services July 26, 2000 2

Yale School of Management Two Major Issues with Scope of Services • Integrity of the U. S. financial reporting system – We want auditors to have good incentives. • Value added by non-audit services – We want everyone in the economy to produce valueadded goods and services. – It is my understanding that the SEC is charged only with protecting the integrity of financial reporting, but I would hope efficiency is a concern as well. July 26, 2000 3

Yale School of Management Value Added by Non-audit Services • Prima fascia case that accounting firms have added a lot of value to the economy by providing non-audit services. • The firms make money offering these services, and we should presume the clients also receive benefits July 26, 2000 4

Yale School of Management Source: “Analysis of Data Requested by the Independence Standards Board from the Five Largest Accounting Firms, " Antle & Gitenstein July 26, 2000 5

Yale School of Management Source: “Analysis of Data Requested by the Independence Standards Board from the Five Largest Accounting Firms, " Antle & Gitenstein July 26, 2000 6

Yale School of Management Economies of Scope: The Key Issue • Economies of scope are the values of the synergies generated by bundling services • There is no systematic evidence of their magnitude. • Firms have been successful incubators: – Firms have achieved high growth in their consulting businesses – Arthur Andersen re-grew consulting after Andersen Consulting split July 26, 2000 7

Yale School of Management Integrity of Financial Reporting: Auditor Incentives • Auditors’ incentives originate from many sources – Reputation – Competition & market pressures – Regulation & professional discipline – Civil litigation and criminal laws July 26, 2000 8

Yale School of Management Incentives are a Joint Product • It is impossible to isolate one feature and call it independence • Results: – Problem of auditor’s overall incentives is too often forgotten in favor of moralizing about “independence” – “Concerns” are substituted for evidence. July 26, 2000 9

Yale School of Management Requests • A thorough, systematic attempt to estimate the magnitude of the economies of scope should be undertaken before serious restrictions on the scope of services are imposed • Whatever rules are adopted should balance the value of the economies of scope against the potential financial reporting costs July 26, 2000 10