March 1999 Issue


By John F. Burke, CPA

SOP 98-8, Engagements to Perform Year 2000 Agreed-Upon Procedures Attestation Engagements Pursuant to Rule 17a-5 of the Securities Exchange Act of 1934, Rule 17Ad-18 of The Securities Exchange Act of 1934, and Advisories No. 17-98 and No. 42-98 of the Commodity Futures Trading Commission , has been issued by the ASB's Securities Industry Year 2000 Agreed-Upon Procedures Task Force. The text of the SOP without appendices was published in the January issue of the Journal of Accountancy . The full document is available on the AICPA website.

The SOP was issued in response to pronouncements of the SEC and the Commodity Futures Trading Commission (CFTC). The SEC issued rules requiring reporting of specified matters with respect to Year 2000 readiness by broker-dealers and certain transfer agents. The rules require broker-dealers meeting certain threshold requirements and certain transfer agents to file a report prepared by an independent public accountant regarding the broker-dealer or transfer agent's process for addressing Y2K problems as of March 15, 1999. The CFTC issued an advisory indicating that a Y2K problem, as defined, constitutes a "material inadequacy," thus triggering certain notification requirements applicable to its registrants and their accountants. Both organizations have acknowledged that an agreed-upon procedures engagement performed in accordance with SOP 98-8 will meet their regulatory requirements.

The SOP provides background on the rules of both organizations, and the applicable definition of the Y2K problem. The engagement is to be performed according to SSAE No. 4, Agreed-Upon Procedures Engagements . The text of the SOP covers the requirements for establishing an understanding with the client, the assertions to be addressed, and reporting requirements. The procedures to be performed for broker-dealers, transfer agents, CFTC registrants, and a combined SEC/CFTC report are covered in appendices, as is a sample CFTC report. The SOP was effective on issuance and the reports to be issued by the accountants are required in the first half of 1999, thus its one-shot nature.

The AICPA effort is not unlike one it made several years ago in connection with reports on oxygenation of gasoline. Authorities wanted some assurances that gasoline distributors were complying with oxygenation requirements. The AICPA developed a report of agreed-upon procedures that provided a satisfactory mechanism for all concerned. The AICPA has done the same with this SOP. It is to be commended for stepping up to the plate and developing a product that gives regulators some assurances but provides guidance and protection to accountants at the same time. The SOP was developed by the Securities Industry Year 2000 Agreed-Upon Procedures Task Force, composed of members of the Auditing Standards Board, the Stockbrokerage and Investment Banking Committee, and the SEC Regulations Committee.

In several places the SOP warns that the engagements described therein are designed only to satisfy the regulatory requirements of the SEC and CFTC and that the procedures in the appendices are neither appropriate nor intended for use in other engagements. Despite this, it would appear that the approach and procedures would form a good model for providing audit committees and boards of directors with some assurance on Y2K preparedness. While the procedures in the SOP relate to the securities industry, the process used for addressing the Y2K problem--assessment, electronic interfaces, and remediation strategy--is one that could be used in any industry. *

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