FOR IMMEDIATE RELEASE 2000-77 All Big 5 Accounting Firms Agree To Participate in Voluntary Program To Address Independence Violations; Safe Harbor Provided for Certain Violations Firms Will Conduct Reviews, Disclose Past Violations, and Improve Quality Control Systems Washington, DC, June 7, 2000 -- The Securities and Exchange Commission announced today that all of the Big 5 accounting firms have agreed to participate in a voluntary look-back program to report past violations of auditor independence rules. In exchange, the program provides a safe harbor from enforcement and certain other staff actions, except in situations involving the most serious violations, such as when a firm itself or senior persons working on an audit own stock in an audit client. The program requires participating accounting firms to retain independent counsel to oversee reviews and to disclose past independence violations relating to auditors' financial interests in their clients. All accounting firms that practice before the SEC may participate in the program, which will commence on June 15, 2000. In announcing today's program, Chairman Arthur Levitt said, "This is a significant chapter in the Commission's and the profession's efforts to reinforce the importance of auditor independence. This serious and comprehensive review will enhance investor confidence and lead to improved quality control systems going forward. I commend the profession for working constructively with the Commission's staff to develop this vital program." Summary of Program Requirements: The purposes of the reviews are to examine investments held by certain of the accounting firms' partners and managers during a period of at least nine months ending March 31, 2000 and to determine whether those individuals or their immediate family members held financial interests in audit clients of the firm. The reviews also would determine whether the accounting firms themselves held financial interests in their audit clients during the same period. Participating firms will hire independent outside counsel to oversee the reviews. Firms will disclose violations to the SEC and to the audit committees of their clients. The participating firms also have agreed to design and implement, subject to oversight of the Public Oversight Board, systems, procedures, and internal controls previously specified by the Commission's Chief Accountant. (See letters on the SEC website at:http://www.sec.gov/offices/account/calt129a.htm and http://www.sec.gov/offices/account/calt501c.htm.) Summary of Program Benefits: Participating firms would receive safe-harbor protection for all but the most serious violations covered by the program. The safe harbor would provide assurances that the SEC's Enforcement Division would not recommend enforcement action, and that the filings of the firms' clients would be unaffected by reported violations. It does not cover violations that the Commission's staff were informed of prior to the commencement of the program. Nor does the safe harbor cover violations that took place during the review period ended March 31, 2000 that the SEC staff is informed of after the completion of the program. Richard H. Walker, Director of the SEC's Division of Enforcement, said, "Auditor independence in fact and in appearance is at the core of investor confidence in the accuracy of financial statements. The look-back program provides a constructive framework for addressing past independence violations and will help to promote the integrity of the financial reporting process." SEC Chief Accountant Lynn E. Turner said, "This program will identify issues that will be helpful in developing improved systems, procedures, and controls to provide assurance of compliance with all independence rules in the future." Timeline: * By June 15, 2000 Firms to notify SEC staff of intent to participate in program * June 15, 2000 Firms participating in program begin reviews * July 15, 2001 Firms submit reports to SEC staff; SEC staff report to follow # # # FACTS ABOUT THE VOLUNTARY LOOK-BACK PROGRAM * Review by Independent Counsel: Each firm would retain independent counsel to oversee a review to identify certain independence violations relating to ownership of prohibited financial interests in their SEC audit clients during a period of at least nine months ending March 31, 2000. (The Fardella review of PricewaterhouseCoopers (PwC) would satisfy this requirement so PwC would not have to undertake another review in order to participate in the program.) The reviews would be completed within 12 months of the program's commencement on June 15, 2000. * Scope of Review: The prohibited investments in audit clients that firms and their independent counsel would have to identify are limited to the following: - Any direct investment in securities of an SEC audit client, including securities held in a brokerage account or IRA; - Any prohibited loan, including a margin account loan, with an SEC audit client; and - Any employee-benefit-plan account holding securities of an SEC audit client (such as a 401 (k) account), except if such account is held by or for the spouse or dependent of a firm partner or professional employee. * Persons Subject to Review: The firms' own investments would be subject to review. In addition, investments of the following persons who are in service at the commencement of the program would be reviewed: - Audit partners and professional employees who worked on an audit; - Partners who were in a position to influence an audit (e.g., supervisors); - Partners not in the categories above, but who were located in an office or practice unit that participated in a significant portion of an audit; - Non-audit partners and managerial employees (e.g., consultants) who provided a significant amount of non-audit services to an SEC audit client; and - Spouses and dependents of the individuals above. * Scope of Enforcement Safe Harbor: The Division of Enforcement would not recommend any enforcement action with respect to a violation reported under the program, except for violations in the categories below, as to which the staff may exercise its discretion: - Violations by a firm; - Violations that resulted because a partner or manager (or, his or her spouse or dependents) held a prohibited financial interest in a SEC client in whose audit the partner or manager participated, except for certain inadvertent violations; and - Violations that the Commission's staff were informed of prior to the commencement of this program or are informed of after the completion of this program. * Scope of Filings Safe Harbor: The Division of Corporation Finance and the Office of the Chief Accountant would not disapprove of or delay an issuer's filings solely on account of a violation reported under the program, except as to the categories listed above, which are outside the enforcement safe harbor. * Systems and Controls: Firms would continue to implement the systems, procedures, and internal controls relating to independence previously set forth by the Commission's Chief Accountant. The Public Oversight Board would issue public written reports with respect to design, implementation, and effectiveness of the systems, procedures, and internal controls. * Reporting and Disclosure: Firms would report violations identified during the reviews both to the Commission's staff and to the audit committee of the relevant issuer. Within 13 months of the commencement of the program, each firm would submit to the Commission's staff a report of the results of its review. Following receipt of the firms' reports, the Commission's staff would publish a report. # # #