NEWS

CHARTER

AUDIT
EFFECTIVENESS
PANEL

CONTACTS

Preamble
The United States capital markets are the most liquid markets globally and are a model for other countries. The fundamental strength of the U.S. markets is sustained by a system of regulation based on full and fair disclosure. This has created transparency in the sale of securities which has been enhanced significantly by the accounting profession's audits of public corporations' financial statements filed with the Securities and Exchange Commission ("SEC").

The accounting profession has had a self-regulatory system for many years. This system of self-regulation has been improved to maintain public confidence in the integrity and reliability of the financial reporting process, which is in the public interest. The activities of self-regulation have included a national uniform entry examination, coordinated state regulatory statutes, establishing and enforcing accounting, auditing and behavioral standards and a mandatory peer review process.

Periodically, it is in the public interest to review and improve self-regulation of the accounting profession to maintain public confidence in the integrity and reliability of the financial reporting process through improving the quality of independent audits of financial statements of issuers who are registrants with the SEC.

In 1977, a Senate subcommittee held hearings to determine whether additional governmental regulation of public accountants was necessary or a system of professional self-regulation was sufficient.1

In response, the American Institute of Certified Public Accountants ("AICPA"), in consultation with the SEC, created a self-regulatory framework by action of the Council of the AICPA on September 17, 1977 that contained the following key elements:

- the creation within the AICPA of a Division for CPA firms;

- the creation within this Division of an SEC Practice Section ("SECPS") designed to enhance the quality of the audit practice of accounting firms that audit financial statements filed with the SEC in accordance with the federal securities laws; and

- the creation of an independent Public Oversight Board ("POB") to assure that the public interest in independent auditing receives appropriate consideration at all times.2

In 1985, the AICPA joined four other sponsoring organizations in creating an independent private-sector initiative, the National Commission on Fraudulent Financial Reporting ("National Commission"). The National Commission, from October 1985 to September 1987, studied the financial reporting system in the United States to identify causal factors that can lead to fraudulent financial reporting and steps to reduce its incidence. The National Commission's report included recommendations related to audit quality, including self-regulation.

In 1994, the POB formed the Advisory Panel on Auditor Independence ("Advisory Panel"). The Advisory Panel's 1994 report assessed the working relationship among the auditing profession and its constituents and identified steps to bolster the objectivity, independence, and professionalism of auditing firms.

The " [POB] over the years has informally expanded its mandate to monitor and comment on matters that relate to the quality of auditing and financial reporting in the United States, because [the POB] believe[s] that it would ill serve the public interest if the profession's quality control programs were a model of integrity and effectiveness while other forces and circumstances destroyed the public's confidence in the credibility of financial reporting in the United States."3 The POB has made recommendations to the AICPA and the SECPS concerning issues confronting the accounting profession beyond those strictly comprehended by its oversight of the SECPS self-regulatory programs, which recommendations have received appropriate consideration and action from the AICPA and SECPS.4

The General Accounting Office ("GAO") in its September 1996 report summarized and evaluated the progress made in implementing the recommendations of the National Commission and the Advisory Panel as well as numerous other initiatives by the AICPA and others. The GAO report stated that its "analysis of the actions taken by the accounting profession in response to the major issues raised by the many studies from 1972 through 1995 shows that the profession has been responsive in making changes to improve financial reporting and auditing of public companies."5 The report also noted that its "review of the studies' findings shows that the actions of the accounting profession have not been totally effective in resolving several major issues."6 A number of these issues have been resolved since the date of the GAO report. In addition, most of the recommendations concerning the accounting profession from the National Commission and the Advisory Panel identified in the GAO report have been implemented.7

In September 2000, the POB's Panel on Audit Effectiveness ("Panel")8 issued its Report and Recommendations dated August 31, 2000. The Panel emphasized that, "while many specific recommendations are made for improvements in the conduct of audits and the governance of the profession, our report demonstrates that both the profession and the quality of its audits are fundamentally sound."9

There has been no significant change in the oversight authority of the POB since the late 1970s. At the same time, there have been major developments in the accounting profession, including the rapid transformation of the business of accounting firms, changes in the governance structures of self-regulation, and major financial reporting cases. Accordingly, the Panel, the POB, the Board of Directors of the AICPA ("AICPA Board"), the Executive Committee of the SECPS ("EC") and the SEC believe that it is in the public interest to have one organization, i.e., the POB, with strengthened authorities in a charter,10 exercising expanded oversight11 with respect to the audit process to implement effective self-regulation of the profession as it relates to audits of publicly-traded companies. The effectiveness of the development of auditing and independence standards can be enhanced by having a system of cooperative self-regulation, with closer coordination with other elements of self-regulation and public oversight.

The Panel recommended that the POB, AICPA, SECPS and SEC work together to develop a formal charter for the POB, and that these bodies and the major firms should agree to the Charter and cooperate in its implementation.12 The Panel believed that "a newly empowered POB will monitor the progress toward implementing the recommendations in [the Panel's] report."13

The public interest and investor confidence are enhanced by a system of cooperative self-regulation whereby the POB in its oversight role works closely with the AICPA, the profession, the SEC and other government agencies, and the SECPS and its member firms, but is independent of all of them.

The AICPA Board and the EC, as reflected in the attached resolution which is an integral part of this Charter and marked Exhibit 1, recognize that it is in the public interest and that of the accounting profession to strengthen cooperative self-regulation through the enhanced authority and activities of the POB set forth in this Charter and pledge their support for this expanded role for the POB in achieving more effective self-regulation.

NOW, THEREFORE BE IT RESOLVED

I. Authority

The POB's role is oversight and not management. The POB shall oversee the audit and independence standard-setting, peer review, quality control and monitoring bodies relating to SECPS member firms, in order to represent the public interest on all matters that may affect public confidence in the integrity, reliability and credibility of the audit process. The POB shall have the authority to take any other action related to its oversight activities, including authorizing any oversight reviews it may determine to be appropriate in order to carry out its responsibilities, while noting the factor of confidentiality and having consulted with the EC.

In fulfilling its responsibilities, the POB shall provide an open avenue of communication between itself and members of the public, the accounting profession, the AICPA Board, the Auditing Standards Board ("ASB"), the Congress, the Independence Standards Boards ("ISB"), quality control and monitoring organizations, the SEC, other regulatory agencies at all levels of government, the SECPS and its member firms, and other national as well as international professional organizations, both governmental and private.

II. Membership of the POB

A. Number of Members and Eligibility
The POB shall consist of five members ("Members") except during a reasonable time period to fill any vacancies. Members shall be drawn from among prominent individuals of integrity and reputation, including, but not limited to, former public officials, lawyers, bankers, non-practicing certified public accountants, securities industry executives, educators, economists and business executives.

B. Nomination of New Members
The POB shall have a Nominating Committee consisting of three persons with the authority to nominate new Members for the POB for each vacancy on the POB caused by resignation, removal or death, consistent with the eligibility requirements in II.A. above. The three persons who serve as the Nominating Committee shall consist of the chair of the POB ("Chair") or her/his designee from among the Members, a former public member of the AICPA Board to be selected by the AICPA Board, and a person from the private sector. The Chair of the POB or her/his designee and the former public member of the AICPA Board will, in turn, jointly select the third member of the Nominating Committee from the private sector.

The Nominating Committee shall nominate by a vote of two-thirds of its members three or more persons for each vacancy for a new Member on the POB.

C. Election of New Members
The POB shall elect by a vote of two-thirds of its Members in office new Members from among the nominations submitted by the Nominating Committee. In the event no one nominee receives the required vote, the POB may request the Nominating Committee to submit additional nominations consistent with the requirements in II.A. and B. above.

D. Terms of Members, Retirement and Removal
The term of a Member shall be five calendar years ending on December 31. A Member may be reappointed by a two-thirds vote of Members in office, but shall not serve for more than two full terms plus the balance of any term filled by that Member as a result of a vacancy. The terms of Members shall be staggered to ensure continuity so that the term of one Member shall expire each year. Any Member elected to fill a vacancy created by a resignation, removal or death occurring before the end of a former Member's term shall serve out the balance of such former Member's term. Notwithstanding the foregoing, all Members shall retire on the first day of the year following her/his seventy-fifth birthday.

A Member may resign from the POB at any time by delivering her/his resignation in writing to the Chair. Acceptance of such resignation, unless required by the terms thereof, shall not be necessary to make such resignation effective.

A Member may be removed, with or without cause, by a two-thirds vote of Members in office.

E. Chair
The POB shall elect, by a majority vote of Members in office, one of its Members as Chair of the POB to serve for a five-year term. In the case of a vacancy in the Chair, the term of the new Chair shall be the balance of the term of that Member who is elected to fill the vacancy. The term of the Chair may be renewed, but the Chair shall not serve for a period in excess of two full terms plus the balance of any term filled by that Member because of a vacancy in the Chair. The Chair shall preside at all meetings of the POB at which he/she is present, may appoint committees, subcommittees or Members to perform certain activities, and shall perform such other functions as are necessary for the execution of the duties of the office of Chair or as the POB may designate. The Chair or her/his designee shall act as a spokesperson for the POB and appear on its behalf before other organizations.

F. Vice Chair
The POB shall each year elect, by a majority vote of Members in office, one of its Members to serve as Vice Chair of the POB ("Vice Chair"). The Vice Chair, in the absence of the Chair, shall preside at meetings of the POB and shall perform such other duties as the Chair may assign to her/him. In the absence or inability of both the Chair and Vice Chair to preside at any meeting of the POB, the other Members shall designate a Member to act as Chair of the meeting in their place.

G. Compensation of Members
Members shall receive reasonable annual compensation for services in their capacities as Members. Such compensation may be adjusted (up or down) by a majority vote of Members in office, having given consideration to all the circumstances. Members shall be reimbursed for out-of-pocket travel and other expenses incurred by them in performing their duties as Members. The POB may approve additional reasonable compensation to a Member for the performance of additional services for the POB.

H. Conflicts of Interest
Members and employees of the POB have the responsibility to be sensitive to circumstances that would adversely affect their integrity or objectivity or the perception of either.
Members and employees of the POB must abide by the POB's Conflict of Interest Guidelines which are intended to provide guidance on circumstances that could adversely affect their integrity or objectivity or the perception of either.

III. POB Staff

The POB shall have permanent, full-time employees and others supervised by an Executive Director to provide assistance in carrying out the POB's functions. The Chair shall appoint the Executive Director and any other officer with the approval of the POB. The Chair may terminate any officer or employee, with or without cause, with the approval of the POB. The responsibilities and compensation of the Executive Director and any other officer shall be determined by the POB. The POB shall review and approve the compensation of employees as recommended by the Executive Director.

The Executive Director shall have charge of the minutes of all proceedings of the POB and shall be responsible for giving notices to Members. The Executive Director also shall have charge of the records, books and papers of the POB. The Executive Director may delegate one or more of her/his responsibilities to other persons on the POB staff as he/she deems appropriate.

Any officer may resign at any time by delivering her/his resignation in writing to the Chair. Acceptance of such resignation, unless required by the terms thereof, shall not be necessary to make such resignation effective.

IV. Indemnification and Advancement of Expenses

To the full extent authorized by law for the good faith exercise of judgment in the performance of assigned duties, the AICPA, to induce each present and future Member to serve as a Member, has agreed, as reflected in the attached letter which is an integral part of this Charter and is marked as Exhibit 2, to indemnify and advance related expenses to any person made or threatened to be made a party to any action, suit, investigation, inquiry, or proceeding, whether criminal, civil or administrative, by reason of the fact that he/she, or her/his testator or intestate, is or was a member of the POB or any committee, trustee, officer, employee, or agent of the POB or serves or served any other entity as a director, trustee, officer, employee, or agent at the request of the POB.14

Without limiting the foregoing, the AICPA Board has advised the POB in the letter attached as Exhibit 2 that the AICPA may contract for insurance against all or a portion of any liabilities and expenses resulting from the indemnification or advancement of expenses of any of the foregoing persons pursuant to this section or otherwise as permitted by law, and may also contract for companion insurance directly insuring any or all of such persons against liabilities and expenses.15

The foregoing right of indemnification and advancement of expenses shall not affect any rights to indemnification and advancement of expenses to which any persons, including Members, officers or employees of the POB, may be entitled by contract or otherwise under law.

V. Meetings of the POB

A. Timing, Notice, Agenda and Record
The POB shall meet seven times per year and at such other times as called by the Chair or otherwise determined by a majority of Members in office.

Notice of each POB meeting shall be given by the Executive Director to each Member by mailing such notice not later than the second day before the meeting, or by personally delivering, cabling, telephoning, faxing or e-mailing such notice not later than the day before the meeting.

Meetings of the POB may be held by telephone, only when necessary, or at such place as the POB may fix or as shall be specified in the respective notices or waivers of notice. Any Member may, only when necessary, participate in a meeting of the POB by means of a conference telephone or similar communications equipment allowing all persons participating in said meeting to hear each other at the same time. Participation in a meeting by such means shall constitute presence in person at such meeting.

The Chair shall establish an agenda and the Executive Director shall keep a record of each meeting.

B. Quorum and Voting
A majority of Members in office shall constitute a quorum for the transaction of any business. Except as otherwise provided by this Charter, the vote of a majority of the Members present at a meeting at the time of vote, if a quorum is present at such time, shall be the act of the POB. However, any action taken pursuant to Section II.E. through G., and Section V.A. and C. of this Charter shall require the vote of a majority of Members in office; and any action taken pursuant to Section II.C. and D., Section IX., Section X. and Section XI. shall require the vote of two-thirds of Members in office.

C. Written Consents in Lieu of a Meeting
Any action required or permitted to be taken by the POB may be taken without a meeting, if a majority of the Members in office consents in writing to the adoption of a resolution authorizing such action. Each resolution adopted in accordance with this paragraph, and the written consents thereto, shall be filed with the minutes of the proceedings of the POB.

VI. Funding of the POB

A. Funding
The SECPS shall provide the POB with all the resources to perform its activities and discharge its oversight responsibilities in accordance with this Charter. The POB shall prepare and submit to the EC, and, if the AICPA Board requests, to the AICPA Board, for consultation, a budget covering its annual operations. Such annual budget shall not exceed five million two hundred thousand United States dollars ($5,200,000), which amount shall be adjusted annually for inflation based on the Consumer Price Index for the most recent twelve month period ended December 31st as published by the Bureau of Labor Statistics of the United States Department of Labor (the "dollar limit"). Notwithstanding the foregoing, the EC and the AICPA Board may increase the foregoing dollar amount based on the consideration of all the circumstances and public interest at any time during the year.

Anticipated oversight reviews shall be included in the determination of the dollar limit16 and shall be included in the annual budget approved by the POB after consultation with the EC, and if the AICPA Board requests, consultation with the AICPA Board.

With respect to unanticipated oversight reviews which are not included in the annual budget and which would cause current period expenditures to exceed the dollar limit in the year covered by the annual budget, such reviews would be subject to a supplemental budget after approval by the POB having submitted such budget to the EC for its concurrence, and, if the AICPA Board requests, to the AICPA Board for its concurrence, their concurrence not to be unreasonably withheld.

The POB shall monitor expenses incurred with respect to both annual and separate budgets and, at any time the POB believes there will be material variations, shall communicate such variations to the EC and the AICPA Board.

Funding for the POB and its officers, employees and others, and all their activities authorized by the POB, shall be provided by the SECPS and its members through the AICPA. For purposes of implementing this Charter, subject to the provisions of the first paragraph of this Section, funding shall be made available to the POB to pay all expenditures of the POB which will be at the sole discretion of the POB. The POB shall have adequate "no-strings" funding.17 Once the POB submits and consults on its annual budget, as called for above, the EC and the AICPA Board shall not withhold funding for any reason. With respect to any separate budget subject to concurrence of the EC, and, if the AICPA Board requests, concurrence of the AICPA Board, once approved by the POB with such concurrence, the EC and the AICPA Board shall not withhold funding for any reason, subject to the provisions of the first paragraph of this Section.

In furtherance of financial accountability, the POB shall have its expenses audited by an independent public accountant on an annual basis and included in the POB's annual report.

B. Officers, Employees and Consultants
Consistent with the provisions in VI.A. above, the POB shall have the authority in its sole discretion to select and retain its own officers, employees, counsel, accountants and other consultants to assist it in performing its activities and discharging its oversight responsibilities.

VII. Oversight Responsibilities of the POB

A. In furtherance of the POB's oversight role as stated in Section I, the POB shall oversee the following standard-setting organizations, peer review, and quality control and monitoring organizations.

1. SECPS

a. The POB shall have oversight authority with respect to the SECPS.

b. The POB shall provide oversight with respect to the processes and activities conducted by and through the SECPS, including the EC, the Peer Review Committee, the Quality Control Inquiry Committee, the SEC Regulations Committee, and the Professional Issues Task Force. The staff of the POB shall continue to oversee peer reviews, quality control inquiries and other matters relating to the quality of audits of the SECPS member firms.

c. Nominations for the members of the EC shall be made by the SECPS in consultation with the POB, and all nominations for the chair of the EC shall be approved by the AICPA Board and the EC with the concurrence of the POB, which will not be unreasonably withheld. The evaluation review in Section VIII.F. at the end of three years after adoption of this Charter shall include an assessment of the effectiveness of this provision and whether such provision should be revised.18

d. The POB shall oversee the activities of the SECPS's committees and task forces to assure their effectiveness, and representatives of the POB, as part of its oversight activities, may attend meetings of such committees and task forces to express views relating to its oversight responsibilities. Representatives of the SECPS, at the invitation of the POB Chair, may attend and participate in meetings of the POB. One or more representatives of the POB shall meet periodically with the EC.

e. The POB may recommend issues for inclusion on the agenda of the EC.

f. The POB shall, on the basis of its oversight activities, evaluate the effectiveness of the SECPS, including the qualifications and performance of EC members and the adequacy of resources, and set forth its evaluation in its annual report.

2. ISB

a. The POB shall have oversight authority with respect to the ISB, but the POB's authority shall not include setting independence standards.

b. The POB shall consult and advise on all nominations for the members and chair of the ISB.

c. Representatives of the POB, as part of its oversight activities, may attend meetings of the ISB and have the opportunity to express views relating to its oversight responsibilities. Representatives of the ISB, at the invitation of the POB Chair, may attend and participate in meetings of the POB.

d. The POB shall evaluate the implementation of the ISB standards through the peer review process and report to the ISB and the public concerning such evaluation.

e. The POB shall, on the basis of its oversight activities, evaluate the effectiveness of the ISB, including the adequacy of resources and set forth its evaluation in its annual report.

3. ASB

a. The POB shall have oversight authority with respect to the ASB and its activities with respect to SEC registrants, but the POB's authority shall not include setting auditing standards.

b. Nominations for the members of the ASB shall be made by the AICPA Board in consultation with the ASB and the POB. All nominations for the chair of the ASB shall be approved by the AICPA Board with the concurrence of the POB, which will not be unreasonably withheld. The evaluation review in Section VIII.F. at the end of three years after the adoption of this Charter shall include an assessment of the effectiveness of this provision and whether such provision should be revised.

c. Representatives of the POB, as part of its oversight activities, may attend meetings of the ASB and have the opportunity to express views relating to its oversight responsibilities. Representatives of the ASB, at the invitation of the POB Chair, may attend and participate in meetings of the POB.

d. The POB shall evaluate the implementation of the ASB standards through the peer review process and report to the ASB and the public concerning such evaluation.

e. The POB may recommend issues for consideration for inclusion on the agenda of the ASB.

f. The POB shall, on the basis of its oversight activities, evaluate the effectiveness of the ASB, including the qualifications and performance of professional members and the adequacy of resources and set forth its evaluation in its annual report.

B. The POB may have a Coordinating Task Force which would be a standing committee consisting of the chairs of each body within the POB's oversight or their designees and which would be responsible for exchanging information relating to each body's activities.19 The Task Force would meet periodically, but at least semi-annually. A POB Member designated by the Chair of the POB would be a member and the first chair of the Task Force in order to set up its organization. Thereafter, the chair of the Task Force will be selected among and by its members.

VIII. Activities of the POB

In furtherance of the POB's role as stated in Section I above, the POB is authorized:

A. To oversee and advise on the selection and retention of peer review firms;

B. To conduct oversight reviews and to undertake other projects and actions, after consulting with the EC, on matters covered by the POB's activities that the POB deems appropriate to protect the public interest;

C. To issue a written annual report containing a description of the POB's activities. The report shall include, because of the importance of the disciplinary process to self-regulation, summary statistics of the (i) status of all AICPA Professional Ethics Division investigations on audits of SEC registrants when the civil litigation and public regulatory investigations have been published and concluded;20 and (ii) the actions taken by and reported to the POB by SECPS member firms with respect to the foregoing.21

The report shall also include, among other matters, an audited statement of expenses and any evaluations and recommendations with respect to those organizations subject to the POB's oversight. The report shall be made publicly available to all interested parties;

D. To hold an Annual Meeting open to the public;

E. To issue and make public such other written reports as the POB may deem necessary with respect to its activities;

F. To arrange for the conduct of a review and issuance of a written report by a panel containing an evaluation of the effectiveness of the POB's oversight role and process at the end of three years after the adoption of this Charter and periodically thereafter, for purposes of evaluating the POB's accountability. This report shall cover an evaluation of the activities of the POB, including the adequacy of the budget and staff resources of the POB as well as the POB's accountability for such resources. To the extent relevant to the evaluation of the POB's activities, the panel shall consult with the organizational bodies subject to POB oversight. In addition, the report shall cover an evaluation of the effectiveness of the provisions in Section VII.A.1.c. and Section VII.A.3.b. and whether such provisions should be revised. The report shall also cover a review of the effectiveness of the annual outreach meeting in Section VIII.H. and whether this annual outreach meeting alleviates the need for an advisory council.22

As to the selection and composition of the review panel, the POB shall select two members of the review panel. The public members of the AICPA Board shall select two former public members to be members of the review panel. These four members shall select the fifth member of the panel. The five members of the review panel shall be independent of the POB, SEC and the accounting profession. The members of the review panel shall select the chair of the review panel;

G. To review and reassess this Charter on a periodic basis to assure its continuing adequacy and relevancy in the light of changing circumstances and, if appropriate, take steps to amend it;

H. To hold an annual outreach meeting to solicit views and recommendations about the accounting profession's self-regulatory program and the POB's oversight process. This meeting may include, among others as appropriate, representatives from the private sector, profession, government, professional organizations and public. Reference to such meetings will be made in the POB's annual report; and

I. To establish liaisons with national and international organizations regarding setting national and international auditing and independence standards, and other matters relevant to the cooperative self-regulation of the profession.

IX. Duration
The existence of the POB shall continue unless terminated by a vote of two-thirds of Members in office after consultation with the AICPA Board and the EC.

X. Amendment of Charter
The Charter may be amended by a vote of two-thirds of Members in office at a meeting duly called for that purpose, with the concurrence of the AICPA Board.

XI. Effectiveness
This Charter shall become effective as of the date approved by a two-thirds vote of the Members in office after receipt of a resolution of approval from the AICPA Board (Exhibit 1) and the AICPA letter relating to indemnification (Exhibit 2).

1 See "Professional Self-Governance: An Interim Report", speech of SEC Chair (Jan. 4, 1978) at 2.

2 At that time, the SEC noted: "[T]he jury is out whether the AICPA program of self-regulation will be successful. But clearly the key to success lies in the Public Oversight Board and its ability to function effectively. If the quality, stature, and commitment to independence of the individuals selected to the [POB] are sufficiently high; if the [POB] can devote the time and is provided with adequate staff and budget; if it is not impeded in performing its functions and responsibilities; and if it can effectively oversee the disciplinary framework; then the overall program should contain the major necessary ingredients." Id. at 12; and "[T]he Commission believes that the conceptual and practical obstacles to a successful self-regulatory program necessitate strong leadership to the self-regulatory effort. That leadership should come from the POB. The POB should serve as the conscience and critic of the self-regulatory effort." Staff of Senate Comm. on Governmental Affairs, 96th Cong., 2d Sess., SEC Report to Congress on the Accounting Profession and the Commission's Oversight at 22 (1980).

3 POB Annual Report 1997-1998 at 2. The POB has reported on its oversight of the profession's self-regulatory programs each year in its annual reports.

4 In the POB's March 5, 1993 Special Report, In The Public Interest - Issues Confronting the Accounting Profession, the POB, among other things, recommended that steps be taken to improve auditor performance for detecting management fraud. The AICPA Board endorsed all the Board's recommendations in its June 1993 statement titled, Meeting the Financial Reporting Needs of the Future: A Public Commitment From the Public Accounting Profession. That statement strongly articulated the profession's responsibility for the detection of fraud. The AICPA's Auditing Standards Board issued a Statement on Auditing Standards, Consideration of Fraud in a Financial Statement Audit in February 1997.

5 The GAO report, The Accounting Profession - Major Issues: Progress and Concerns, at 4.

6 Id.

7 See Appendix II to the GAO report at 32-34, 38-39.

8 The Panel was established by the POB at the request of the SEC Chair, and performed a "comprehensive review and evaluation of the way independent audits are performed and assessed the effects of recent trends in auditing on the public interest." Cover letter dated August 31, 2000 with the Panel Report and Recommendations ("Panel Report") at 1 (Aug. 31, 2000).

9 Cover letter dated August 31, 2000 with the Panel Report at 1.

10 The POB has been operating pursuant to Bylaws and organizational documents, but no Charter, since its formation in 1977.

11 As the SEC Chair stated: "I also strongly endorse the notion of enhanced POB oversight of the accounting profession, and urge the profession to endorse it as well". Speech of SEC Chair (May 10, 2000) at 9.

12 Panel Report at Section 6.24.

13 Panel Report at Section 8.14.

14 This is comparable to an indemnification provision in the AICPA's by-laws and extends coverage to officers and others. Currently, the AICPA has agreed to indemnify past, current and future Members in a letter from the AICPA to the POB dated September 10, 1987.

15 Id.

16 The expenditures for the oversight reviews, reports, and any testing by the POB referred to in the "Term Sheet for Independence Look-Back Testing Program" and letter dated September 13, 2000 from the SEC's Chief Accountant to the POB's Chair, currently anticipated, shall be excluded in determining the dollar limit.

17 The Panel has stated that it "strongly believes that such 'no-strings-attached funding' is absolutely essential if the POB is to be effective and independent of the profession and if the profession's self-regulatory system is to be viable. The profession must not be able to control or cut off the POB's financial resources and thereby cause irreparable harm to the profession's self-regulatory system by destroying the POB's independence and others' confidence in it. The POB's annual statement of expenditures should be audited and included in the POB's Annual Report to evidence its financial accountability." Panel Report at Section 6.25.

18 The historic practice has been for the AICPA, EC and POB to be consulted and to give input on nominations for the chair of the EC. In effect, the POB concurred with the approval by the AICPA Board of the chair of the EC. This Charter provision confirms the substance of past practice and documents to the public the responsibilities of the AICPA, EC and POB.

19 The POB will monitor the agenda of the SEC and the Professional Ethics Executive Committee to identify rule-making, regulatory and standard-setting activities that relate to the audit of public companies for the purpose of communicating information relating to such activities to the Coordinating Task Force for appropriate consideration.

20 See Panel Report at Section 6.29.

21 It should be noted that there are issues of confidentiality with respect to disciplinary matters.

22 The Panel specifically discussed this in its Report. See Panel Report at Section 6.26.

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