National Association of State Boards of Accountancy
150 Fourth Avenue North, Suite 700, Nashville, TN 37219-2417
Tel 615/880-4200 Fax 615/880-4290 Web www.nasba.org
December 23, 2002
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549-0102
File No. S7-46-02
The National Association of State Boards of Accountancy appreciates the opportunity to review and comment on the Securities and Exchange Commission's Proposed Rule: Retention of Records Relevant to Audits and Reviews.
We recognize the time constraints under which the Commission has been operating as it works to meet the deadlines set by the Sarbanes-Oxley Act. The work produced by the Commission's staff has been very impressive. However, the number of rules being proposed and the short time in which they are all to be studied has made it difficult for the state boards to give all the proposals the careful study they deserve.
Just as the Commission is dedicated to protecting the public, so are the state accountancy boards. The boards, and the Commission, realize the important role independent auditors play in our market economy and seek to ensure that those auditors are of high caliber. Consequently, there is a need to fine-tune regulation so that no rules are created that offer undetermined public benefit but are so burdensome as to make entry into the profession undesirable.
Within recent months, a few states have moved ahead with developing their own workpaper retention rules. California has already passed Assembly Bill No. 2873 and New York has Section 29.10(a)(11) of the Rules of the Board of Regents going into effect on January 3, 2003. The Vermont Board of Public Accountancy has proposed a record retention rule and is presently accepting public comment. But there are many state accountancy boards that are waiting to see how the SEC will develop rules to implement the Sarbanes-Oxley Act before creating their own jurisdiction's rules.
The SEC's rules are of great significance to state regulators for several reasons. First, in those cases where a state's licensee is found guilty of violating a rule of the Commission, the state board would want to be able to back up federal discipline that was based on fair and effective regulation. It would be unfortunate if a state board were to be put in the position of enforcing a rule with which it did not agree. Second, regulations that are found to be fair and effective at the federal level could serve as model regulations for the states. Once a standard is set for SEC registrants' audit workpapers, it is not hard to imagine its being applied to all clients'.
The retention of materials that "support or cast doubt on the final conclusions reached by the auditor," as stated in proposed amendment 210.2-06(c), is a requirement that could be very helpful in discipline and enforcement efforts. The state attorneys' general staff members assigned to the accountancy boards have often complained of receiving only those documents that support the final report. Other record retention rules do not include a similar requirement. Sarbanes-Oxley in Section 103(a)(2)(A)(i) only calls for the retention of workpapers "in sufficient detail to support the conclusions reached in such report," but Section 105(b)(2)(B) says the new oversight board may "require the production of audit work papers and any other document or information in the possession of a registered public accounting firm ... that the Board considers relevant or material to the investigation...." Clarification on exactly what is to be retained is very important so as not to create an unreasonable burden on the auditors, but to provide information for effective investigations. Consideration needs to be given to what is enforceable. We hope there would be prompt revisions of the final rule should circumstances prove the rule to be too burdensome or otherwise unworkable. The SEC staff's request for examples of materials that "cast doubt" on auditors' conclusions would be useful information.
NASBA and its member boards look forward to increased sharing of information among state and federal regulators. We hope for improved public protection through effective communication with the Commission and the Public Company Accounting Oversight Board.
K. Michael Conaway
|David A. Costello|
President and CEO, NASBA