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The SEC Practice Section Executive Committee recently issued a series of "best practices" for member firms of that section. The development of best practices for firms to follow was originally in response to the Public Oversight Board Report Strengthening the Professionalism of the Independent Auditor. That report conveyed the suggestions of a panel of leading professionals under the leadership of Donald Kirk, now a member of the POB. Two of the suggestions were in the area of improving communications by auditors with boards of directors and improving the process for consultation among a firm's partners on accounting issues. A best practices task force of the SECPS Peer Review Committee was formed to deal with the first two areas. Subsequently the AICPA SEC Regulations Committee saw the need for and developed best practices guidance in the area of consultation between a company, its auditors, and the SEC Staff.

The best practices guidance in the three areas was distributed to members of the SECPS and is available on the AICPA's web site. Best practices have not been approved by any AICPA senior community and therefore have no authoritative status.

A brief summary of the three areas of guidance is as follows:

Communications with Board of Director/Audit Committees. Establish policies and procedures that will--

* promote the development of relationships between the auditor and the board/audit committee that stress open and candid conversation,

* lead to discussions with boards/audit committees regarding qualitative aspects of financial reporting--which should be in advance of year-end,

* establish a regular meeting schedule with boards/audit committees.

Accounting Consultations. The best practices task force concluded that firms' policies and procedures to assist firms in arriving at appropriated conclusions over tough accounting issues should include--

* identification of issues requiring research by having personnel assigned to the engagements with the proper training and experience.

* a structure for researching issues that includes defining the issue, reviewing appropriate professional literature and present practice, evaluating alternatives, formulating conclusions, assessing the need for consultation,
and documentation of

* an environment that encourages consultation and has a formal structure for consultation to take place including the identification of those who should be consulted.

* an identification of circumstances that require consultation--i.e., high risk areas.

* methods for resolving disagreements within the firm.

* advice for communicating decisions to clients and methods for handling client reactions to the decisions.

Communications with SEC Staff. The SEC Relations Committee identified the following best practices:

* Firms should have a policy that the engagement partner consult with the firm's SEC partner (the partner the firm has given the authority to represent the firm and give the firm's position before the SEC) prior to communications with the SEC.

* Pre-filing conferences should not be undertaken without the consent of the client.

* Submissions to the SEC are preferably in writing and signed by the company. The company presents the issues to the SEC; the auditor is present to answer questions on matters of GAAP and GAAS.

* Procedures for appealing a decision of a SEC staff member should be done in consultation with the firm's SEC partner. *

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