September 1998 Issue

INDEPENDENCE BOARD ISSUES INVITATION TO COMMENT

The Independence Standards Board (ISB) recently issued an Invitation to Comment on a proposed recommendation to the Executive Committee of the SEC Practice Section of the AICPA. The proposal is as follows:

An auditor of a Securities and Exchange Commission registrant shall issue to the entity's audit committee, or board of directors, at least annually, a written report confirming the auditor's independence under the applicable rules to the Securities and Exchange Commission, the Independence Standards Board, and the American Institute of Certified Public Accountants. In addition, the auditor should offer in that confirmation to meet with the audit committee or board to further discuss the firm's independence, including the firm's compensating controls employed when independence issues arise.

The primary objective of the board is to have both auditor and board focus on issues of auditor independence. It is hoped the formal letter requirement will motivate auditors to keep in mind the need to devote substantial attention to independence issues. Also, any meeting with the board resulting from the letter should help to improve the board's understanding of independence issues.

The invitation asks for input on the following issues:

* Will it be helpful?

* Is there an equal or better way to promote an audit committee's evaluation of their auditor's independence?

* Do the benefits of the proposal outweigh its costs?

* Should the letter be delivered at the time of the auditor's appointment?

The invitation asks for comment on one other interesting aspect of the entire process. The recommendation will be addressed to the Executive Committee of the AICPA's SEC Practice Section. The board acknowledges that, if the proposal is enacted, it would not apply to all audits of companies subject to SEC reporting companies, particularly foreign companies whose auditors are not affiliated with the AICPA. The question asked by the board is whether the recommendation should be addressed to the Auditing Standards Board or perhaps to both the SECPS and the ASB.

Comments were due by July 23, 1998. *

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