The Arthur Andersen Worldwide Organization includes Arthur Andersen & Co. (an illinois partnership), separate legal entities with the Arthur Andersen name, and organizations with which Arthur Andersen & Co. has exclusive representation agreements, all of which are authorized under the laws of the countries in which such operations are located. The extensive interchange of personnel training and practice programs has provided a worldwide organization of individuals of many nationalities who adhere to the same objectives of professional leadership and client service, while complying with the laws, regulations, and professional ethics of the 16 18 25 Harvey Kapnick, Chairman Professional 2 Preserving the freedom and independence of the public accounting profession in the face of government regulatory pressure is a worldwide challenge. Our people have continued their efforts to advance accounting and auditing standards in many countries, but broadly based efforts toward establishing worldwide standards have not yet evolved. Issues of inflation and sensitive payments have accented the need to develop international accounting standards and an accounting profession that is responsive to the requirements of international business communication. These conditions are being complicated by nationalistic desires, unreasonable governmental intervention in certain countries, and an accounting profession in need of perceptive, aggressive leadership. We are convinced that these matters are urgent and must be resolved to assure continued success of the private sector. In the United States, the Securities and Exchange Commission has injected itself into the area of accounting principles in a way that led us to institute legal action against two rules established by that commission. In our judgment, these rules jeopardize the continuation of independence from government domination of both the public accounting profession and the private sector's mechanism for setting accounting standards. Previous annual reports have described the programs and policies which we have established to provide and monitor quality control in our professional practice. Emphasis on these efforts has continued. Arrangements were made during the past year to have an independent firm of public accountants provide Practice further outside assistance to our Public Review Board in its review of our quality control program. With the participation of this firm, the overview of our Public Review Board, and our own internal control and review procedures, we believe our firm has clearly evidenced, and has assured our clients and the public, of our deep commitment to excellence. For the past several months, considerable publicity has been given to certain types of transactions and payments by business entities around the world. While the laws, customs, ethical constraints, and professional standards vary among countries in which our offices are located, we hold to our belief that, to the extent possible, uniform policies must be applied on a worldwide basis. This enables us to conduct our professional services in a responsible manner and best serve our clients and the public. In June, 1976, we summarized and distributed to all our professional personnel the highlights of our long-established worldwide code of conduct applicable to our personnel and to our relationships with clients, governmental units, and regulatory agencies. This publication was made available to our clients and other interested parties upon request and is an important step in assuring our clients and others of our forthright approach to maintain the highest standards of professional conduct. In recent years, the costs imposed on business to comply with governmental regulations have mounted rapidly. Audit fees have been impacted significantly by additional disclosure and attestation requirements. In response to this, we are critically evaluating alternative audit approaches and intensifying our efforts to develop improved audit techniques. A combination of better methods and productivity gains obtainable from leveling peak personnel requirements can help offset the increased costs resulting from inflation and the additional work mandated by those who regulate business reporting. A new audit approach, which we have called "Transaction Flow Auditing." has been developed and is being field tested. This concept makes extensive use of clients' computer systems and better relates audit scope to controls over the flow of financial events and transactions. We believe that it will also further a better understanding of each client's business in a manner that can be utilized to accomplish reductions in audit time requirements This approach will benefit companies where good controls exist. In other companies, the technique will identify areas where more effective controls or increased internal auditing efforts are needed to offset the requirement for higher audit fees. The extensive computer and systems expertise in our organization will be an important factor in applying this new approach in our audit practice Continuing changes in the patterns of international trade, flow of capital and economic activity levels are generating increased economic and political competition among the nations of the world. This, in turn, has caused overlapping and competitive claims on the income of international enterprises. major changes in revenue statutes, and stronger tax compliance procedures Concurrently, variations in national standards of ethical conduct and business practices complicate our attempts to provide uniform professional services to our clients in all countries, including those with transnational operations In response to these developments, we have focused our clients' attention on statutory requirements in the countries in which they operate, accepted methods of income allocation among related economic entities, anc intrasystem pricing policies and expense allocations employed to recognize overlapping national taxation regulations. |