ACCOUNTING AND AUDITING PRACTICES AND PROCEDURES TUESDAY, MAY 10, 1977 U.S. SENATE, SUBCOMMITTEE ON REPORTS, ACCOUNTING, AND MANAGEMENT, COMMITTEE ON GOVERNMENTAL AFFAIRS, Washington, D.C. The subcommittee met at 8:35 a.m., pursuant to recess, in room 6202, Dirksen Senate Office Building, Hon. Lee Metcalf (chairman of the subcommittee) presiding. Present: Senators Metcalf, Danforth, and Percy. Staff members present: Vic Reinemer, staff director; E. Winslow Turner, chief counsel; John B. Chesson, counsel, Gerald Sturges, professional staff member; Lyle Ryter, minority counsel; Jeanne A. McNaughton, chief clerk; and Anne Boni, legislative assistant. OPENING REMARKS OF SENATOR METCALF Senator METCALF. The subcommittee will be in order. Today we resume our hearings regarding the improvement of auditing and accounting practices established or recognized by the Federal Government. The Senate is presently very busy working on a number of other matters which require attention of the members of the subcommittee. This morning, for example, we have a full committee markup session scheduled for 10 o'clock. We have another subcommittee meeting in 3302 that I have already attended this morning inadvertently. In order to complete each day of hearings within the limited time. available, it will be necessary to limit the oral presentation of witnesses. Witnesses testifying alone should summarize their prepared statements within 10 minutes; those testifying as part of a panel within 5 minutes. I will issue an order here. I hope I don't have to repeat it. All the prepared statements will be incorporated in the record as if fully read. This procedure will allow us some time to ask questions. I hope the witnesses and members of the subcommittee will keep our time constraints in mind during their oral presentations. The first witness today is Mr. John Biegler, managing partner of Price Waterhouse. We are delighted to have you here, Mr. Biegler. You go right ahead with your prepared statement. Senator, do you want to make a statement? Senator PERCY. I just want to join you in welcoming our witness, Mr. Biegler. I am glad to have you here. We have a distinguished panel today. I also would like to take note, Mr. Chairman, of the sunrise service interest of these hearings. We have not lacked for interest in the hearings. We are most appreciative for the presence of many members of the accounting profession who are deeply concerned about the issues that we have been discussing. And not only that, but there are some extraordinarily helpful suggestions we have had. We are really developing a consensus and body of support for the hrust of what we try to accomplish in these hearings to see how much the profession can do on its own, regardless of government, to maintain the highest standards in the world for this great profession. I think we are, Mr. Chairman, working diligently in that direction I would like to say that I have found these hearings extraordinarily helpful. I hope that we will hold another set of hearings a year from now that will then look back and take into account all of the pledges that have been made by leaders of the industry to see what progress has been made; in a sense, monitor the private sector so that as much of the initiative as possible can be taken by them. I don't think these hearings are hit and run. I think it is a standing, long-term interest that this subcommittee now has in the profession. I believe that the degree of interest we have had is most encouraging to all of us and the degree of support and help we have had. I know it has helped me shape up many of my ideas. People here have contributed immensely to this effort. We are happy to have you join us, Mr. Biegler. TESTIMONY OF JOHN C. BIEGLER, SENIOR PARTNER, PRICE WATERHOUSE; ACCOMPANIED BY JAMES FITZPATRICK, COUNSEL, ARNOLD & PORTER Mr. BIEGLER. Thank you, Mr. Chairman. I am John C. Biegler, senior partner of the U.S. firm of Price Waterhouse. Accompanying me is our counsel, James Fitzpatrick of Arnold & Porter. I will summarize my testimony this morning, but I ask that it be included in full in the record. We welcome the opportunity to testify here this morning. We believe that the staff study of this subcommittee and these hearings have provided a valuable catalyst for a fresh look at the role and responsi hility of independent accounting firms in our modern economy. We believe further that in certain areas the staff study has reflected valid concerns about the accounting profession. We at Price Waterhouse have long shared these concerns. In other areas, I must confess, we are in fundamental disagreement with some of the analyses and criticisms of the staff study. But I do not believe that it would be constructive to take up your time this morning debating these disagreements. Rather, we have prepared and are submitting today a printed statement which responds in detail to the specific criticisms set forth in the staff study. More significantly, that statement describes at length our affirmative proposals for reform. ask that my prepared statement and this printed statement be inaled in full in the record. Senator METCALF. Without objection, so ordered. TESTIMONY OF JOHN C. BIEGLER, SENIOR PARTNER, SUBCOMMITTEE ON REPORTS, ACCOUNTING COMMITTEE ON GOVERNMENTAL AFFAIRS 95TH CONGRESS, 1ST SESSION I am John C. Biegler, the senior partner of the United States firm of Price Waterhouse & Co. I have served in this position since 1969. Price Waterhouse is one of the oldest and, I believe, one of the most proficient and respected, of the independent accounting firms in this country and in the world. Price Waterhouse is a worldwide organization established in 1850 and now practicing in 86 countries. We have been engaged in the practice of independent accounting and auditing in the United States since 1890. Our practice of accounting and auditing therefore long predates the enactment of the federal securities laws. Through the years we have conducted hundreds of thousands of audits for thousands of different corporations; these audits have been relied upon both by financial institutions and by individual investors. Over that time we have acquired a reputation for competence and integrity. most important asset. That reputation is our 2 We welcome the opportunity to testify here this morning. We believe that the Staff Study of this Subcommittee and these hearings have provided a valuable catalyst for a fresh look at the role and responsibility of independent accounting firms in our modern economy. We believe further that in certain areas the Staff Study has reflected valid concerns about the accounting profession. We at Price Waterhouse have long shared these concerns. In other areas, I must confess, we are in fundamental disagreement with some of the analyses and criticisms of the Staff Study. But I do not believe that it would be constructive to take up your time this morning debating these disagreements. Rather, we have prepared and are submitting today a comprehensive written statement which responds in detail to the specific criticisms set forth in the Staff Study. More significantly, our detailed statement describes at length our affirmative proposals for reform. I ask that this written statement be printed in full in the record. I believe that Price Waterhouse, and the profession in general, have performed with independence |