October 22, 2002
To The Managing Partners of SEC Practice Section
Member Firms
Re: Quality Control Inquiry Committee Report - Recommendations for
the Profession Based on Lessons Learned from Litigation
A report has recently been issued by the SEC Practice Section (“SECPS”)
Quality Control Inquiry Committee (“QCIC”) entitled “Recommendations for the
Profession Based on Lessons Learned from Litigation.” The report contains
recommendations for the Financial Accounting Standards Board, AICPA
Auditing Standards Board, SECPS member firms and the Public Company
Accounting Oversight Board. The report may be viewed in its entirety on the
SECPS website at http://www.aicpa.org/download/secps/QCIC10-02Report.pdf
The primary objective of the QCIC is to conduct an investigation when
allegations of an audit failure are made against a member firm with respect to an
audit of an SEC registrant and certain other entities. The purpose of the
investigation is to determine whether there are deficiencies in the firm’s system of
quality control, in its compliance with that system or in professional standards.
Member firms are required to report to the QCIC, within 30 days of being served,
all matters of alleged audit failures involving SEC registrants arising from
litigation, regulatory investigations and criminal indictments. The QCIC process
begins almost immediately after a matter is reported; it is not deferred while legal
or regulatory proceedings are in process. The QCIC process is overseen by the
Transition Oversight Staff, and prior to 2002 was overseen by the Public
Oversight Board. The U.S. Securities and Exchange Commission (“SEC”)
reviews the QCIC’s closed case summaries that describe the work performed and
the conclusions reached.
The QCIC has analyzed information relating to over 200 cases closed since
December 1997 in order to identify problem areas and trends that may need to be
addressed to further improve financial reporting and audit quality. This analysis
has led to the QCIC developing recommendations for the profession based on the
lessons learned from litigation. The recommendations are directed at the
following groups:
- Financial Accounting Standards Board (“FASB”)
- AICPA Auditing Standards Board (“ASB”)
- SECPS member firms
- Public Company Accounting Oversight Board
The QCIC encourages member firms to pay particular attention to the
recommendations included in the section of the report for SECPS member firms,
and believes that the implementation of these recommendations will lead to
improved financial reporting and audit quality. The report has also been
distributed to the FASB, ASB and to the SEC. It should be noted that while the
SECPS Executive Committee discussed a draft of this report at its September
meeting, no decisions have been made about further changes to the SEC Practice
Section’s membership requirements to act on these recommendations.
If you have any questions about the information contained in the report, please
contact Jennifer Roddy, Director – SEC Practice Section, at 201/938-3020 or via
e-mail at jroddy@aicpa.org.
Sincerely,
Robert J. Kueppers
Chair
SECPS Executive Committee
cc: Robert K. Herdman, Chief Accountant, Securities and Exchange Commission
Jerry D. Sullivan, Executive Director, Transition Oversight Staff
SECPS Executive Committee
SECPS Peer Review Committee
SECPS Quality Control Inquiry Committee
SEC Regulations Committee