From: Rule-Comments Sent: Friday, September 13, 2002 10:42 AM To: Rule-Comments; Burke, Samuel L.; Williams, V. Bernice Subject: FW: May - The Chair's Corner (s7-24-02) -----Original Message----- From: Bill Hanlin [mailto:bill@hanlinmoss.com] Sent: Thursday, May 30, 2002 3:42 PM To: chairmanoffice@sec.gov; gmcrooch@fasb.org; nfoster@fasb.org; eljenkins@fasb.org; gsschieneman@fasb.org; kschipper@fasb.org; ewtrott@fasb.org; jkwulff@fasb.org Subject: Fw: May - The Chair's Corner Harvey L. Pitt, SEC Michael Crooch, FASB Neel Foster, FASB Edmund Jenkins, FASB Gary Schieneman, FASB Katherine Schipper, FASB Edward Trott, FASB John Wulff, FASB I sent this email to the chair of the AICPA yesterday. A couple of my colleges thought you might be interested in a practitioner's point of view. Respectfully submitted, Bill Hanlin, Jr. ----- Original Message ----- From: Bill Hanlin To: James_Castellano@rbg.com Sent: Wednesday, May 29, 2002 4:39 PM Subject: May - The Chair's Corner Dear Jim: I have been receiving the CPA letter in one incarnation or another for many many years now. I have never read The Chair's Corner with more interest than this recent issue. I confess to feeling let down, outraged and even very disappointed that the efforts to reform the accounting profession are taking place at such a piece-meal pace when, frankly I think you will agree, we need something BOLD to take place in the face of all the negative press/fallout following Enron. Something that will catch the attention of both the public and our members. Let me be more specific. The one thing that will restore confidence in the accounting profession is an enforcement of the standard of Independence. The big firms are the leaders and the small firms do what the big firms do. The big firms don't follow anyone except themselves and often by consensus. The AICPA, as far as the public is concerned, is suppose to be the leader of the profession. This is how most small firm practitioners feel as well. The AICPA is suppose to be the leader instead of the partner of big firms. Yet every time the accounting profession has had a publicity failure in the last several decades, the AICPA stands up and tells the public that "...we can police ourselves... there is no need for special legislation or even oversight from a government agency (like the SEC)..." The answer to our problems, right now, today, is INDEPENDENCE! INDEPENDENCE! INDEPENDENCE! Along with that, the profession could use a little reminder on the concepts of OBJECTIVITY. The answers are simple to the present dilemma. But, the AICPA (historically) puts out band-aid fixes that the big firms can live with and we go on. Until next time. From the messages contained in the May CPA LETTER, it sure looks like more band-aids are being applied instead of real, lasting fixes. In the last paragraph of your message you state that "While there are clearly barriers to achieving meaningful improvements...The AICPA is committed to working with the FASB (and) the Securities and Exchange Commission...." WHY does the AICPA need the permission of the FASB, SEC or anyone else in order to take the action to support the public interest? Why is the AICPA waiting? Later in the CPA LETTER is a Practice Alert (2002-02). This bulletin goes to the very heart of the issues that have caused so much grief recently to our profession. Firms that audit and provide consulting services to those same audit clients are the problem in our profession. This practice is a clear conflict of interest! Period! This practice leaves huge doors open for accusations of audit- failures and lawsuits from perceived conflicts of interest. In the Alert the AICPA is giving guidance to all members for the use of specialists. I read this Alert very carefully. There is no bright line for members to use when deciding to use a specialist that is independent from the audit process. In fact, the Alert specifically encourages firms involved in auditing to use in-house specialists because this allegedly makes quality control easier. Nonsense! My opinion is that this rationalization is mere pandering to the big firms that subsidize audit fees with consulting engagements. If the AICPA had actively prohibited this sort of rationalized nonsense, perhaps Enron would never have become such an embarrassment to our profession! Case-in-point: In the final paragraph of the Alert, the AICPA specifically endorses the use of valuation specialists in the conduct of FAS 141 and FAS 142 engagement. That is a great idea, but it falls short of requiring the independence of the valuation specialist. Auditors are suppose to audit the client's books and records. Auditors are not supposed to create those books and records. If the valuation specialist determines that goodwill has been impaired, the client must record the writedown in the books and records. How can it, then, make sense that a valuation specialist working at the audit firm should tell the client how to make such an adjustment, and then let the audit-team audit the work and results of the in-house valuation specialist? Jim, you mark this date.... this is exactly where the next line of embarrassment for our profession is going to come from. Unless... the AICPA does something BOLD... like enforce the standard of independence! This is my profession too. I have been in this field for more than 30 years! I enjoy the benefits of being in a profession that is generally well thought of by the public at large. The solution to the present public relations nightmare is in being absolutely crystal clear, unequivocal, that INDEPENDENCE (and Objectivity) cannot and must not be a subject of rationalization. We cannot be seen to be pleasing ourselves because fees are at stake. We must always be seen to be taking the high road...without the prospect of a cattle prod from behind. The AICPA must carry this flag! The AICPA must do it now in order to avoid further diminishment of our profession. Confessing that the AICPA has been TRYING to fix the problems since 1994 is very telling. Those of us in small firms are waiting with held breath for the AICPA to seize the day. You are right, the time is now!!!!! I am, Respectfully yours, William A. Hanlin, Jr. CPA 206-623-3200 Seattle, Washington