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January 17, 2002 Mr. James S. Gerson Chair Auditing Standards Board c/o PricewaterhouseCoopers LLP 500 Campus Drive Florham Park, NJ 07932 |
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Dear Mr. Gerson: The purpose of this letter is to request the Auditing Standards Board (ASB) to review its standards and interpretations and to take appropriate action to enhance its standards on auditing issues raised by Enron Corporations collapse. As you know, the Enron situation has created deep concern among Congressional Committees and regulators and has been the subject of continuing media coverage. The scope of these inquiries is evolving, but certainly is focusing on: what happened, how did it happen, why did it happen so quickly, and what can and should be done to avoid similar events in the future. Given the Public Oversight Boards oversight authority with respect to the ASB, and as part of the POBs mission to act in the public interest, we believe that protecting investors and maintaining confidence in our capital markets is essential. In this spirit, the POB requests that the ASB review and take appropriate action on the auditing issues relating to the items listed below as a result of the Enron matter: |
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1. The auditors responsibility for Plain English fair and meaningful disclosure in financial statements including footnotes. 2. Auditing guidance related to special purpose entities (SPEs), including liabilities, contingent or otherwise, valuation issues and whether the SPE meets the criteria for non-consolidation. 3. Auditing guidance related to estimated and contingent liabilities (see The Panel on Audit Effectiveness Report and Recommendations, paragraph 2.160). 4. Auditing guidance related to energy and other commodity contracts for which there is no readily determinable market. 5. Measurement and disposition of proposed audit adjustments. 6. Evaluation of the quality of other information accompanying audited financial statements (e.g., description of the business, segment information, management discussion and analysis of operations and financial condition, as well as risk factors). 7.
The auditors understanding of the
business purpose and substance of related party transactions and related disclosures. |
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Particular focus
should be on off-balance sheet financing. We also encourage the ASB to review any
additional issues as the Enron matter evolves. We are sending a copy of this letter to the Financial Accounting Standards Board with a request that it take such action as it deems appropriate because the list of issues involves accounting principles, and to the SEC because it administers the disclosure program covering the issues cited. We also are sending copies to the SEC Practice Section that adopts membership requirements for accounting firms that audit financial statements of issuers that file reports with the SEC, and to the House Congressional Committees that have oversight and legislative responsibilities and have contacted us previously on this subject. We further are sending copies to the AICPA and the Big 5 accounting firms that have taken initiatives in these areas, and to the Peer Review and Quality Control Inquiry Committees with the request that these Committees review their processes for whatever enhancements are appropriate in light of the Enron matter. Sincerely, ![]() Charles A. Bowsher |
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cc: | The Honorable W. J.
Billy Tauzin, Chair Committee on Energy and Commerce The Honorable John D. Dingell, Ranking Member Committee on Energy and Commerce The Honorable Cliff Stearns, Chair Subcommittee on Commerce, Trade, and Consumer Protection Committee on Energy and Commerce The Honorable Edolphus Towns, Ranking Member Subcommittee on Commerce, Trade, and Consumer Protection Committee on Energy and Commerce The Honorable Michael G. Oxley, Chair Committee on Financial Services The Honorable John J. LaFalce, Ranking Member Committee on Financial Services The Honorable Richard H. Baker, Chair Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises Committee on Financial Services The Honorable Paul E. Kanjorski, Ranking Member Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises Committee on Financial Services The Honorable Harvey Pitt, Chair United States Securities and Exchange Commission The Honorable David M. Walker, Comptroller General United States General Accounting Office Edmund L. Jenkins, Chair Financial Accounting Standards Board Joseph F. Berardino, Managing Partner-Chief Executive Arthur Andersen LLP Stephen G. Butler, Chair KPMG LLP James E. Copeland, Jr., Chief Executive Officer Deloitte & Touche LLP Samuel A. DiPiazza, Chair and Senior Partner, US Firm PricewaterhouseCoopers LLP James S. Turley, Chair Ernst & Young LLP Robert J. Kueppers, Chair SECPS Executive Committee Barry C. Melancon, President and Chief Executive Officer American Institute of Certified Public Accountants Richard L. Miller, Chair Peer Review Committee Robert D. Neary, Chair Quality Control Inquiry Committee |
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