Subject: File No. S7-21-04
From: Mr. Steve Walls

July 8, 2004

Name: Steve Walls

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Comment : I am an auditor and have worked in the mortgage industry for over 20 years. I believe substantial modifications to USAP are in order and these modifications are appropriate. It would, however, be appropriate to also give consideration to establishing a sample size for each of these tests to be conducted by the independent auditors and also a measure of materiality. I would envision a sample size to be determined by utilization of statistical sampling techniques to derive a 98% confidence level that the error rate is less than 2%. Such an error rate, I believe, would be acceptable by the investment community and mortgage companies. Care would have to be used to determine the risk factors to be used by the independent auditor in determining their sample size so guidance would be need to be provided by the SEC.

Another question I have is the procedure regarding supervisory review of the bank reconciliation. Currently, there is no time frame required for this review. The bank reconciliation must be completed by 45 days per USAP (30 days per the proposed rules) but there is no reference to the timing of the supervisory review.