PricewaterhouseCoopers
177 Avenue of the Americas
New York NY 10036
Telephone (646) 471 4000
Facsimile (646) 471 4100

December 27, 2002

Mr. Jonathan G. Katz, Secretary
U.S. Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549-0609

Re: File Number S7-46-02

Dear Mr. Katz:

PricewaterhouseCoopers appreciates the opportunity to comment on the Commission's Proposed Rule: Retention of Records Relevant to Audits and Reviews required by Section 802 of the Sarbanes-Oxley Act of 2002. We fully support the Commission's efforts to further strengthen existing requirements regarding the retention of audit records.

We have several comments that we respectfully submit to the Commission for your consideration.

Our main comments on the proposed rule are summarized in this cover letter. In addition, we have provided a redlined version of the proposed rule showing our suggested revisions. We have also provided more detailed responses to the specific questions the Commission has asked within the proposed rule in Exhibit A attached to this letter.

General Comments to Proposed Rule on Retention of Records Relevant to Audits and Reviews

The proposed rule should clarify the categories of documents to be retained.

The proposed rule, as written, appears to identify three categories of documents to be retained: (1) workpapers, (2) other documents forming the basis of the audit or review of an issuer's financial statements, and (3) memoranda, correspondence, communications and other documents, and records (including electronic records) that are created, sent or received in connection with the audit or review and contain conclusions, opinions, analyses or financial data related to the audit or review.

These groupings make the rule vague and ambiguous. While the rule sets forth two distinct categories for retention in addition to the audit workpapers, it fails to distinguish between workpapers and documents required to be retained under the two other categories. Subsection (b) of the proposed rule defines "workpapers" as "documentation of auditing or review procedures applied, evidence obtained, and conclusions reached by the accountant in the audit or review. . .". At a minimum, a significant subset of the documents falling into the second and third categories of documents would fall under that definition. If each phrase in the proposed rule is to have meaning, the rule should be revised to make it clear that documents falling into the second and third categories may overlap with the workpaper category.

It appears that the intent of the rule is to capture specified types of documents whether or not they are found in the workpapers. We believe that this purpose can clearly be satisfied by setting forth two provisions: (i) the requirement that workpapers be maintained; and (ii) the requirement that certain types of documents (current categories two and three) also must be maintained to the extent that they are not already included in the workpapers.

The proposed rule implements criminal provisions with severe penalties. As such, it is essential that the rule be as precise and clear as is possible in defining the scope of documents included. We believe that the revision of the categories is necessary for that purpose.

We have proposed specific language reflecting our proposed revisions in the redlined version of the rule set forth below.

The text of the proposed rule should make it clear that superseded drafts and duplicates are not covered by the requirements of subsection (a).

Note 24 to Release Nos. 33-8151; 34-46869 states that the proposed rule is not intended to require the retention of "superseded drafts or auditor review notes that do not reflect a difference of opinion." We appreciate this clarification, since the burden of a rule requiring the retention of all drafts would be extremely severe. For that reason, we believe that the rule itself must contain this clarifying language to avoid confusion. We also believe that the language should be revised slightly to state clearly that draft "documents" need not be retained and to explicitly state that duplicates need not be retained. Again, we believe that the rules must be clear in light of the severe sanctions imposed for non-compliance.

These proposed revisions are included in the redlined version of the rule below.

The proposed rule should require maintenance only of documents containing conclusions, opinions, analyses and financial data which are material to the issuer's financial statements or to the auditor's final conclusions regarding any audit or review, and the requirement to retain financial data received from the issuer must be clarified.

The proposed rule requires the retention of all memoranda, correspondence, communications, other documents and records that are created, sent, or received in connection with the audit or review of the issuer's financial statements, and contain conclusions, opinions, analyses, or financial data related to the audit or review. We believe that there are two significant problems with this aspect of the rule as drafted that would impose an enormous burden disproportionate to any potential benefit.

First, documents containing "conclusions, opinions, analysis or financial data" that are not material to the financial statements and/or the auditor's report should not have to be retained. If all documents containing even insignificant conclusions, opinions, analyses and financial data are maintained, auditors' records will contain volumes of largely irrelevant documents. The records will be less useful to the Commission, subsequent auditors, and other potential users of the audit records, frustrating what we believe is a significant purpose of the proposed rule. As a result, we have proposed language in the redlined version of the rule that makes it clear that only documents containing conclusions, opinions, analyses and financial data which are material to the issuer's financial statements or to the auditor's final conclusions regarding any audit or review of the issuer's financial statements need to be retained.

Second, the proposed rule, which states that "the accountant shall retain . . .records (including electronic records) . . . received in connection with the audit or review . . . that contain . . . financial data related to the audit or review," could be read to encompass all issuer financial information or records reviewed by the auditor in connection with the audit. That would impose an immense burden. In the course of an audit, accountants (i) conduct electronic review of voluminous financial records using the issuer's systems; (ii) consult voluminous ledgers and subledgers for the purpose of confirming particular entries; (iii) receive voluminous electronic copies of issuer financial reports and records; and (iv) often perform work by reviewing information directly in the client's files that is not photocopied, printed or otherwise reproduced for purposes of the audit. Thus, the proposed document "retention" rule could actually have the effect of changing the conduct of the audit by requiring that every record (including electronic records) "received" during this process be photocopied or printed in order to be able to show that all records received were "maintained." In addition to leading to an exponential increase in the volume of paper that would be collected and retained in the course of the audit, and the corresponding cost, this would have a detrimental effect on the conduct of the audit. Auditors' ability to select records for review without revealing that selection to the issuer would be impeded by the necessity of obtaining copies of the records, and audit resources would be shifted toward clerical tasks not necessary to the conduct of the audit. In addition, the records underlying the financial statements exist and are retained by the issuer. If the Commission believes that a rule requiring the retention of all such records is necessary, imposing such a rule on auditors is an extremely inefficient method of achieving that goal.

We believe that the proposed rule therefore must be revised to clearly state that copies of issuer financial records that are reviewed or received by the auditor in the course of the audit need not be maintained by the auditor unless otherwise required to be included in the workpapers as defined in subsection (b). We have proposed language in the redlined version below to reflect this proposed change.

The "cast doubt" standard should be revised to "evidencing differences of opinion existing at the completion of the audit on issues that are material to the issuer's financial statements or to the auditor's final conclusions regarding any audit or review".

The proposed rule provides for the retention of documents if the "conclusions, opinions, analyses, or financial data in the materials . . . cast doubt on the final conclusions reached by the auditor."

The "cast doubt" language would give rise to an entirely vague and subjective standard that goes far beyond what is required under Section 802 of the Sarbanes-Oxley Act. We strongly believe that the "cast doubt" standard, if adopted, would be vague, create confusion and give rise to substantial uncertainty and unfair results.

The question of whether a document "casts doubt" on conclusions is entirely subjective. It is unreasonable to expect that an auditor, after issuing an opinion on an issuer's financial statements that he believes is fully supported by the audit evidence, will be able to determine which documents and records might be deemed to "cast doubt" on the final conclusions reached in the opinion. In practice, it would be impossible for auditors to know in advance whether documents they create, send or receive will, at some later point, be asserted by someone to "cast doubt" on the final conclusions of the audit. As such, implementation of such a standard would have the unavoidable effect of defining the proscribed conduct by hindsight. Well after the fact, others will be permitted to assert that some record would have "cast doubt" on the opinion and could base an alleged violation of the rule on that assertion. That is unacceptable. A law that provides for criminal penalties must be precise as to the conduct prohibited. See City of Chicago v. Morales, 527 U.S. 41, 56 (1999) ("It is well established that a law fails to meet the requirements of the Due Process Clause if it is so vague and standardless that it leaves the public uncertain as to the conduct it prohibits . . . .') (quoting Giacco v. State of Pennsylvania, 382 U.S. 399 (1966)).

For these reasons, our redlined version of the proposed rule below incorporates the alternative standard proposed by the Commission, which requires the retention of documents "evidencing differences of opinion existing at the completion of the audit on issues that are material to the issuer's financial statements or to the auditor's final conclusions regarding any audit or review." This standard provides objective criteria pursuant to which an auditor can effectively evaluate which documents are required to be retained. Moreover, this standard appropriately recognizes that the exchange of differing theories and views which may not be dispositive or even reflective of a final view on a particular subject is a necessary part of the audit, and that it is differences of opinion that continue to exist at the time of completion of the audit that are significant and should be retained.

This standard is consistent with the standard for documenting differences of opinion between auditors and registrants under Regulation S-K:

"The term "disagreements" as used in this Item shall be interpreted broadly, to include any difference of opinion concerning any matter of accounting principles or practices, financial statements disclosure, or auditing scope or procedure which (if not resolved to the satisfaction of the former accountant) would have caused it to make reference to the subject matter of the disagreement in connection with its report. It is not necessary for there to have been an argument to have had a disagreement, merely a difference of opinion. For purposes of this Item, however, the term disagreements does not include initial differences of opinion based on incomplete facts or preliminary information that were later resolved to the former accountant's satisfaction by, and providing the registrant and the accountant do not continue to have a difference of opinion upon, obtaining additional relevant facts or information." (emphasis added)

17 C.F.R. §229.304, Instruction to Item 304, No. 4. We believe that this is an appropriate standard for the rule on record retention.

*****

We request that the SEC revise the proposed rule to read as follows:

¶ 210.2-06 Retention of audit and review records.

(a) For a period of five years after the end of the fiscal period in which an accountant concludes an audit or review of an issuer's financial statements to which section 10A(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78j-1(a)) applies, or of the financial statements of any investment company registered under section 8 of the Investment Company Act of 1940 (15 U.S.C. 80a-8), the accountant shall retain (i) the workpapers, and (ii) documents created, sent or received in connection with the audit or review that form the basis of the audit or review and memoranda, correspondence, communications, other documents, and records (including electronic records), which:

(1) Are created, sent or received in connection with the audit or review, and

(2) C contain conclusions, opinions, analyses, or financial data related to the audit or review that are material to the issuer's financial statements or to the auditor's final conclusions with respect to any audit or review, to the extent that such documents are not included in the workpapers.

(b) For the purposes of paragraph (a) of this section, "workpapers" means documentation of auditing or review procedures applied, evidence obtained, and conclusions reached by the accountant in the audit or review engagement, as required by standards established or adopted by the Commission or by the Public Company Accounting Oversight Board, or, if none, by applicable professional standards.

(c) Materials described in paragraph (a) of this section shall be retained whether if the conclusions, opinions, analyses, or financial data in the materials support or cast doubt on the final conclusions reached by the auditor or show differences of opinion existing at the completion of the audit on issues that are material to the issuer's financial statements or to the auditor's final conclusions regarding any audit or review. For example, such materials shall include documentation of differences of opinion within the auditor's accounting firm or between a member of the auditor's firm and the client existing at the completion of the audit concerning material accounting and auditing issues.

(d) This rule does not require the retention of drafts or duplicates of documents required to be retained under paragraph (a) of this section or auditor review notes unless those documents show a difference of opinion of the type requiring retention under subsection (c). Subsection (a) of this rule also does not require the retention of copies of issuer financial records unless those records otherwise are necessary for inclusion in the workpapers as defined in subsection (b).

(de) For the purposes of paragraph (a) of this section, the term "issuer" means an issuer as defined in section 10A(f) of the Securities Exchange Act of 1934 (15 U.S.C. 78j-1(f)).

*****

We appreciate the opportunity to express our views and we commend the Commission and its Staff for the speed in which it continues to focus on protecting the public interest and strengthening investor confidence.

We will be pleased to discuss any of our comments of answer any questions that you may have. Please do not hesitate to contact Kim Thompson at (415) 498-7950 regarding our submission.

Sincerely,

PricewaterhouseCoopers

Questions

1. Are the "workpapers" and other documents that would be required to be retained under this proposed rule sufficiently described? If not, what changes should be made to provide for greater clarity? Are there alternative definitions that would better implement section 802?

We believe that the proposed rule must provide greater clarity in defining the documents that must be retained. As discussed in the accompanying letter, we believe that (a) the rule should more clearly define the categories of documents to be retained, (b) the rule should clearly state that drafts and duplicates need not be retained, (c) the requirement for the retention of documents containing conclusions, opinions and analyses or financial data must be clarified in two respects: (i) to exclude items that are not material to the issuer's financial statements and/or the auditor's report, and (ii) to state that copies of issuer financial records that are reviewed or received by the auditor in the course of the audit need not be maintained by the auditor unless otherwise required to be included in the workpapers; and (d) the rule should indicate what standards apply to the workpaper definition prior to the Public Company Accounting Oversight Board's adoption of standards.

(a) The rule appears to identify three categories of documents to be retained: (1) workpapers, (2) other documents forming the basis of the audit or review, and (3) other documents created, sent or received in connection with the audit that contain conclusions, opinions, analyses or financial data related to the audit or review. We believe that the categories overlap significantly, and the rule does not clearly indicate whether differences were intended by the different categories. It appears that the intent of the rule is to capture specified types of documents whether or not they are found in the workpapers. The rule would be clearer, however, if it accomplished that result directly, by requiring auditors to keep (1) workpapers, and (2) documents falling into the other categories (current categories two and three) to the extent that "workpapers" does not already cover such documents.

(b) Note 24 to Release Nos. 33-8151; 34-46869 states that the proposed rule is not intended to require the retention of "superseded drafts or auditor review notes that do not reflect a difference of opinion." This clarification is significant and necessary, since the burden of a rule requiring the retention of all drafts would be extremely severe. For that reason, we believe that the rule itself must contain this clarifying language to avoid confusion. We also believe that the language should be revised slightly to state clearly that draft "documents" need not be retained (unless otherwise required under the difference of opinion provision) and to explicitly state that duplicates need not be retained.

(c) The proposed rule requires the retention of all memoranda, correspondence, communications, other documents and records that are created, sent, or received in connection with the audit or review of the issuer's financial statements, and contain conclusions, opinions, analyses, or financial data related to the audit or review. We believe that there are two significant problems with this aspect of the rule as drafted:

(i) First, documents containing "Conclusions, opinions, analysis or financial data" that are not material to the financial statements and/or the auditor's report should not have to be retained. If all documents containing even insignificant conclusions, opinions, analyses and financial data are maintained, auditors' records will contain volumes of largely irrelevant materials. This is particularly true with regard to electronic mail. Unless a materiality standard is included in the rule, it is anticipated that electronic mail that will be required to be retained will increase exponentially. The records will be less useful to the Commission, subsequent auditors, and other potential users of the audit records, frustrating what we believe is a significant purpose of the proposed rule by necessitating burdensome searches to locate relevant and useful documents. In addition, it will become much more costly, time-consuming and burdensome to retrieve and produce records in response to requests by the Commission if a rule is adopted that may require the retention of all electronic mail. As a result, we have proposed language in the redlined version of the rule that makes it clear that only documents containing conclusions, opinions, analyses and financial data which are material to the issuer's financial statements or to the auditor's final conclusions regarding any audit or review of the issuer's financial statements need be retained.

(ii) Second, the proposed rule, which states that "the accountant shall retain . . .records (including electronic records) . . . received in connection with the audit or review . . . that contain . . . financial data related to the audit or review," could be read to encompass all issuer financial information or records reviewed by the auditor in connection with the audit. That would impose an immense burden. In the course of an audit, accountants (i) conduct electronic review of voluminous financial records using the issuer's systems; (ii) consult voluminous ledgers and subledgers for the purpose of confirming particular entries; (iii) receive voluminous electronic copies of issuer financial reports and records; and (iv) often perform work by reviewing information directly in the client's files that is not photocopied, printed or otherwise reproduced for purposes of the audit. Thus, the proposed document "retention" rule could actually have the effect of changing the conduct of the audit by requiring that every record (including electronic records) "received" during this process be photocopied or printed in order to be able to show that all records received were "maintained." In addition to leading to an exponential increase in the volume of paper that would be collected and retained in the course of the audit, we believe that a rule with this effect would be detrimental to the audit process. Importantly, auditors must be able to perform procedures without revealing to the issuer all of the work that they do or the items selected for testing. Having to obtain a record of all such materials limits the ability to make confidential selections and would lead to the ineffective use of audit resources, by shifting attention to keeping every client record used and, of necessity, to some extent away from the substance of the work. In addition, the records underlying the financial statements exist in the files of the issuer. If the Commission believes that a rule requiring the retention of all such records is necessary, imposing such a rule on auditors is an extremely inefficient method of achieving that goal.

For these reasons, we believe that the proposed rule therefore must be revised to clearly state that copies of issuer financial records that are reviewed or received by the auditor in the course of the audit need not be maintained by the auditor unless otherwise required to be included in the workpapers as defined in subsection (b).

(d) Finally, the current definition of "workpapers" is contingent on standards to be issued by the Public Company Accounting Oversight Board.¹ Until the PCAOB issues such standards, other clear standards, such as existing professional standards, should be cited so that accounting firms have a clear understanding of the requirement.

Proposed language reflecting these comments is included with the accompanying letter.

2. Would auditors have to implement significant changes to their retention policies or internal control processes and procedures, as well as system upgrades, to ensure compliance with the proposed rule? If so, what types of changes most likely would be required? How can we minimize any required changes consistent with section 802?

Yes. If the proposed rule were adopted as drafted, the uncertainty generated by its language would of necessity lead to significant changes. For example, retention of all documents containing financial data received from the issuer would itself increase exponentially the universe of documents that an auditor is required to retain. Similarly, if there is no materiality criterion by which auditors can determine which electronic mail messages must be sent to the audit file for retention, auditors may need to retain all electronic mail relating to the engagement unless clearly exclusively administrative. To address the retention of these vast new categories of documents, auditor document retention policies as they relate to both hard copy and electronic documents will have to be revised. We anticipate that significant additional on-site and off-site storage for hard copies of documents would have to be secured. We also anticipate that our electronic filing and archiving system would have to be modified substantially to permit the retention of these numerous additional documents. Lastly, staff will have to be trained in connection with the new document retention policies, and substantial firm resources will need to be expended to ensure compliance with those policies.

While there is no way to eliminate the burden of adapting to the proposed rules, we believe that the revisions suggested in these comments and the attached mark-up would lessen that burden significantly by clarifying the rules on drafts, duplicates, issuer financial records and immaterial items. Absent these modifications, we believe that the rules will result only in more voluminous but less useful audit records.

3. Would auditors circumvent the proposed record retention requirements by, for example, replacing written communications with oral communications? If so, what additional measures should be taken?

Oral and written communications, internally among the audit team and within the firm, as well as externally, between auditor and issuer, are essential to the conduct of every audit. Those communications include the exchange of information, data, opinions, preliminary thoughts and conclusions. We do not believe that oral communications in the course of an audit can fairly be characterized as "circumventing" record retention requirements. We do, however, have a concern that the level of uncertainty created by the proposed rule may very well lead to a natural reluctance to exchange preliminary views in writing. If a staff accountant believes that every first draft or request for an explanation could be viewed as information "casting doubt" on the ultimate opinion, he will be less likely to create such documents. This reluctance could have the effect of decreasing communications in general, since concerns that must await the next meeting to be discussed could be forgotten. Decreasing communications of any sort will be detrimental to the conduct of audits.

In our view, the only way to mitigate these undesirable effects of the proposed rule is to provide greater clarity on the documents to be retained, as set forth in the attached mark up.

4. Section 103 of the Sarbanes-Oxley Act directs the Public Company Accounting Oversight Board to adopt an auditing standard that requires each registered public accounting firm to retain for a period of not less than seven years audit workpapers and other information that support the conclusions in the auditor's report. Should the retention period in the proposed rules be extended to seven years to coincide with the retention period in section 103? Why?

We do not believe that there is a need to extend the five-year period under section 802 to coincide with the retention period in section 103. As outlined in the Commission's discussion of the proposed rule, section 103 calls for retention of a different scope of documents.

5. Should the retention period be for some other appropriate period based on consideration of other factors, such as the utility of the records to investors, regulators or litigants, the cost of retaining the records, or the size of the accounting firm?

We believe that a five-year period is a reasonable period. Investors' use of the records is not an appropriate factor to consider, as investors should be using issuers' records. None of the factors listed, if considered, would require a change of the five-year period.

6. Should there be a document retention requirement for issuers as well as auditors? If yes, what would be the scope and nature of that requirement? For example, should issuers be required to retain records that the auditor reviewed but did not include in the audit workpapers? Should issuers be required to keep copies of all correspondence with the auditors and copies of documents provided to the auditors?

Although such a requirement is not called for under Section 802, we believe that a rule requiring issuers to retain the documents used in the preparation of the financial statements being audited would be beneficial. A rule requiring an issuer to retain copies of all documents provided to the auditors, however, would have a negative impact of the ability to conduct the audit by eliminating the necessary ability of the auditor to select documents or records to review without revealing what has been selected to the issuer.

7. Section 32(c) of the Investment Company Act of 1940 authorizes the Commission to adopt rules to require accountants and auditors to keep reports, work sheets, and other documents and papers relating to registered investment companies for such periods as the Commission may prescribe, and to make these documents and papers available for inspection by the Commission and its staff. Should we use our authority under this section to extend proposed rule 2-06 by requiring that audit workpapers and other documents required to be retained with respect to the audit or review of investment company financial statements be made available for inspection by the Commission and its staff?

No. Proposed rule 2-06 relates to retention of documents as required under the Sarbanes-Oxley Act of 2002. This rule should deal only with retention of documents. Inclusion in this rule of a provision authorized under the Investment Company Act of 1940 relating to making certain documents available for inspection may create ambiguity.

8. The proposed rules would apply to foreign auditors. Are there statutes, rules or standards in foreign jurisdictions that govern the retention of records by foreign auditors that are different from and potentially conflict with the requirements of the proposed rules? If so, how is the foreign law incompatible with the specific provisions of the proposed rules?

There are statutes, rules and/or standards in foreign jurisdictions regarding document retention that are different from and potentially conflict with the requirements of the proposed rules. While we have not undertaken a country-by-country survey, we note, for example, that United Kingdom rules differ from the proposal.

The proposed rules require a retention period that is different from the retention period required under UK law. Under the UK Auditing Practices Board's Statement of Auditing Standards 230 auditors are required to "document in their working papers matters which are important to supporting their report". "Working papers" are defined to include a record of (a) the planning and performance of the audit; (b) the supervision of the audit work; and (c) the audit evidence resulting from the audit work performed which the auditors consider necessary and on which the have relied to support their report. Audit Regulation 3.08b requires auditors to keep "all audit working papers which auditing standards require for . . . at least six years. The period starts with the end of the accounting period to which the papers relate".

By way of example, the UK document retention requirement is thus significantly narrower than what would be required under the proposed rules.

9. Does the "cast doubt on the final conclusions reached by the auditor" provision in the proposed rules adequately capture the scope of the retention requirements under the Sarbanes-Oxley Act? Should the scope be narrower or broader? Would a different test be more appropriate, such as "significant differences in professional judgment," or "differences of opinion on issues that are material to the issuer's financial statements or to the auditor's final conclusions regarding any audit or review"?

As discussed in our accompanying cover letter, the proposed rule provides for the retention of documents if the "conclusions, opinions, analyses, or financial data in the materials . . . cast doubt on the final conclusions reached by the auditor." This "cast doubt" language is broader than the retention requirement under Section 802 of the Sarbanes-Oxley Act. Section 802 calls for the retention of documents that "form the basis" of an audit or review. We believe that a "cast doubt" standard is impermissibly vague, ambiguous, and would give rise to substantial uncertainty and unfair results.

It would be unreasonable to impose on auditor's the burden of attempting to say what documents might be asserted to "cast doubt." After issuing an opinion on an issuer's financial statements that he believes is fully supported by the audit evidence, the auditor is not likely to believe that any of the documents in his possession actually "cast doubt" on the final conclusions reached in the opinion. Since in his view no records would likely satisfy that standard, he will be left to guess at what others might say "casts doubt" on his opinion. In practice, it would be impossible for auditors to know in advance whether the documents that they create, send or receive will, at some later point, be asserted by someone to cast doubt on the final conclusions reached in the opinion. As such, implementation of such a standard would have the unavoidable and unacceptable effect of defining the proscribed conduct by hindsight. For these reasons, we believe that a more appropriate standard would require retention of documents showing "differences of opinion existing at the completion of the audit on issues that are material to the issuer's financial statements or to the auditor's final conclusions regarding any audit or review." This standard provides objective criteria pursuant to which an auditor can effectively evaluate which documents are required to be retained. Moreover, this standard appropriately recognizes that the exchange of differing theories and views which may not be dispositive or even reflective of a single auditor's own final view on a particular subject is a necessary part of the audit, and that it is differences of opinion that continue to exist at the time of completion of the audit that are of significance.

10. Should the rules include other examples of materials that "cast doubt" on auditors' conclusions? If so, what examples should be included?

If the "cast doubt" standard is adopted, the rule must provide additional, specific examples of the documents to be retained. Given the highly subjective and vague nature of the "cast doubt" standard, we respectfully submit that specific examples should be included to provide the clarity that is otherwise wholly lacking from the rule. We recognize, however, that providing such examples may be practically impossible for the same reason that the "cast doubt" standard is unacceptable. Specifically, it is impossible to predict with any certainty documents or records that will be viewed as ones which "cast doubt" on an auditor's opinion without the benefit of hindsight and without taking into account the particular facts and circumstances surrounding any one audit. We view this as a further argument in support of adoption of the alternative standard of "differences of opinion on issues existing at the completion of the audit that are material to the issuer's financial statements or to the auditor's final conclusions regarding any audit or review."

PAPERWORK REDUCTION ACT

11. Pursuant to 44 U.S.C. 3506(c)(2)(B), we solicit comments to: (1) evaluate whether the proposed collections of information are necessary for the proper performance of the functions of the agency, including whether the information will have practical utility; (2) evaluate the accuracy of the Commission's estimates of the burden of the proposed collections of information; (3) determine whether there are ways to enhance the quality, utility, and clarity of the information to be collected; and (4) evaluate whether there are ways to minimize the burden of the collections of information on those who are to respond, including through the use of automated collection techniques or other forms of information technology.

For the reasons described under the cost benefit analysis below, we do not agree with the Commission's estimates of the burden of the proposed collections. We believe that if the Commission revises the proposed rule in the manner we suggest, the burdens will be significantly mitigated.

COST-BENEFIT ANALYSIS

12. We request comments on all aspects of this cost-benefit analysis, including the identification of any additional costs or benefits. We encourage commentators to identify and supply relevant data concerning the costs or benefits of the proposed amendments. We request comments, including supporting data, on the magnitude of the costs and benefits mentioned in this section.

Are there any other costs or benefits that we have not identified? For example, would the cost of audits increase? Please describe any such costs and provide relevant data.

Additional costs will arise if the rules are not revised to make it clear that drafts and duplicates are excluded from the requirements. If every iteration is required to be kept, then (a) significantly more records will be kept than are currently retained, which will increase storage costs and may ultimately result in more costly audits, and (b) if multiple iterations and superseded versions are required to be kept, the ultimate records retained will be more confusing and less useful than if only final versions reflecting final conclusions are kept.

In addition, if auditors must retain all financial data received from the issuer in the course of the audit, the volume of documents to be retained will increase exponentially. Currently, PricewaterhouseCoopers LLP spends approximately $4.5 million per year on off-site storage. It would be reasonable to assume that the volume of audit documentation would double if the proposed rule required the retention of all client financial documents, leading to at least $4.5 million in additional expenses per year.

13. Are there additional costs related to the proposed rules? If there are, please identify them and provide supporting data.

Please see our previous response.

14. Are there measures that the Commission should take, such as encouraging accounting firms to keep more records electronically, to lower storage costs?

The Commission should revise the rules in the manner we are suggesting to mitigate the costs of the proposed rule. We do not believe that requiring additional electronic storage will either minimize cost or adequately deal with the burdens that give rise to our comments.

15. We request comments on the reasonableness of the burden hours, cost estimates, and underlying assumptions related to the proposed disclosures.

As we read the analysis, the Commission assumes that one hour of staff time per audit will be necessary to comply with the proposed rules. We do not believe that that estimate is reasonable. Because we believe that the rules are ambiguous in their present form, however, there is no clear way to measure the costs of compliance. For example, we estimate that the creation of tapes copying all e-mail and document servers used by audit teams so that server space could be used for ongoing work would cost approximately $13 million per year. Alternatively, if a materiality requirement were imposed, we would expect costs to be less and to be more properly measured by the man hours of staff time that would be spent reading and sorting e-mail perform the task of sending all messages that need to be preserved to the proper audit files. Under any scenario, we anticipate the costs would be well in excess of the Commission's estimates.

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1	Since these standards do not yet exist, we cannot comment on the substance of subsection (b) to the extent that it incorporates the prospective PCAOB workpaper definition.