A year of renewal and reforms.

The past year was a dynamic one for the accounting profession, full of challenges and opportunities. Last summer, President Bush signed into law the Sarbanes-Oxley Act of 2002--a sweeping reform measure with a direct impact on the profession that, among other things, created the Public Company Accounting Oversight Board. The Institute pledged its full commitment to working with the Securitie and Exchange Commission and the PCAOB to implement the new law and uphold the public trust. In fact, Institute leaders were at the forefront of efforts to propose or enact reforms. In congressional testimony, AICPA representatives put forward a number of suggestions that ultimately were embodied in the new law. Then, last Sept., in the wake of Sarbanes-Oxley, AICPA President and CEO Barry Melancon called for a rejuvenated accounting culture and made a commitment to restoring confidence in the profession and the financial markets. Melancon envisioned six roles for the AICPA going forward: involvement in standard setting; acting as a liaison between market institutions and corporations; conducting research; providing education; enhancing the quality of business reporting; and promoting strong corporate governance and internal control systems. Furthermore, in his inaugural speech as incoming chair in Oct. 2002,William Ezzell spoke of restoring CPAs' belief in themselves and in the core values and shared purpose of the profession.

With initiatives to reinforce the profession's reputation continuing, The CPA Letter offers this review of the many ways in which the Institute has worked to benefit the profession during the past year. While we spotlight the Institute's response to accounting reform, fraud and corporate governance issues, as well as efforts on the regulatory and legislative fronts, we also discuss new professional tools and guidance available to members, initiatives undertaken to enhance the profession's image and some of the public service efforts of the last year.

Restoring Faith in Business Reporting and the Profession

* As part of its commitment to cooperating in the reform effort, the AICPA commented on numerous SEC proposals to implement Sarbanes-Oxley. Our letters reflected the profession's long-standing positions to bolster the public interest on issues such as management and auditor reports on internal controls, sanctions against those who would mislead auditors and a stronger role for independent audit committees. We also leveraged the expertise of our members in commenting on SEC proposals on accounting for off-balance-sheet activities, non-GAAP pro-forma financial disclosures, auditor independence and records retention in audits.

* To keep members informed of SEC and PCAOB actions and proposals, the Institute created Sarbanes-Oxley Act/PCAOB Implementation Central, an online resource that can be found at www.aicpa.org/Sarbanes/index.asp. It includes a link to the text of Sarbanes-Oxley, a summary of the Act, a timetable for SEC proposals, SEC rulemaking actions, AICPA comment letters in response to those proposals, the latest developments in implementing the Act and PCAOB news and activities. The Institute also set up a hotline [phone]) to help members understand and comply with the Act.

* At the state level, legislators, regulators and other elected or appointed officials have sought to duplicate and/or extend provisions of the Sarbanes-Oxley Act to private companies and their CPAs. The newly created Special Committee on State Regulation developed "A Reasoned Approach to Reform," which serves as a blueprint for state CPA societies in reviewing and responding to proposals that states might apply to private companies and their CPAs. Members can read the white papers that make up "A Reasoned Approach to Reform" and track activity in different states by visiting www.aicpa.org/statelegis/index.asp.

* The AICPA Council approved three proposals that were submitted by the Professional Ethics Executive Committee to improve the timeliness and transparency of the AICPA's disciplinary process. Taken together, these enhancements augment the Institute's disciplinary process and continue to demonstrate that our members hold themselves to the highest professional standards and are intolerant of those who break the rules. Council authorized a member referendum on the two proposals that require changes to the bylaws; voting is expected to take place later this summer.

* In a further effort to initiate positive reforms, the Institute created the Special Committee on Business Reporting, which will collaborate with investors, creditors, regulators, management and other stakeholders to improve the quality and transparency of information for decision makers. Using the current reporting model as a base, an enhanced business reporting model would encompass five fundamental elements: reliable systems; information dissemination; financial and non-financial information; more understandable disclosures; and corporate accountability.

* The Audit Committee Matching System (www.aicpa.org/ info/committees/index.asp) was created to help CPAs learn about opportunities to serve on boards of directors and as a public service to provide a list of qualified, credentialed candidates to serve on boards and their audit committees.

Combating Fraud and Enhancing Corporate Governance

The Institute launched a series of initiatives under its Antifraud and Corporate Responsibility Program. More information on many of the activities listed below and related topics is available at www.aicpa.org/antifraud.

* Newly issued SAS No. 99, Consideration of Fraud in a Financial Statement Audit, was designed to create a substantial change in auditor performance and thus improve the likelihood that auditors will detect material misstatements due to fraud in a financial statement audit.

* The AICPA and six other professional organizations issued a document, which is an exhibit to SAS No. 99, to help businesses of all sizes develop and implement antifraud programs and controls. Management Antifraud Programs and Controls: Guidance to Help Prevent, Deter, and Detect Fraud identifies the measures an organization can take to combat fraud. These include creating an honest and ethical corporate culture, evaluating antifraud processes and controls, and developing an appropriate oversight process.

* The Antifraud and Corporate Responsibility Resource Center is an online resource created to help CPAs address the prevention, detection and investigation of fraud. It contains literature, educational materials, training and news on recent developments.

* Numerous resources, such as Fraud and the CPA, an interactive self-study CPE course from the AICPA and the Association of Certified Fraud Examiners, as well as a SAS No. 99 implementation guide, were created to help CPAs deepen their fraud knowledge, enhance professional skepticism and improve decision processes.

* The AICPA/ACFE antifraud training program, How Fraud Hurts You and Your Organization, helps businesses provide fraud prevention, detection and deterrence training to employees and company stakeholders. This public service offering can be found at www.aicpa.org/antifraud/training/homepage.htm.

* The AICPA published a series of real-life case studies on unethical and illegal activities that sometimes occur in companies. The cases were written by members from their personal experiences and are accompanied by commentary from experts on how to resolve the issues presented. The cases may be downloaded free of charge from the AICPA's Antifraud and Corporate Responsibility Resource Center at:

www.aicpa.org/antifraud/spotlight/030409_cases.asp

* A Fraud Summit to be held shortly will bring together corporate leaders and representatives of the CPA profession and of the reporting community to identify ways to reduce the incidence of fraud.

* The Institute for Fraud Studies, to be established by the AICPA in conjunction with the University of Texas at Austin and the Association of Certified Fraud Examiners, will explore the origin of and circumstances surrounding fraud so that its frequency and effects can be minimized.

Providing Professional Tools and Guidance

* The AICPA's new Consulting Services Special Report 03-01, Litigation Services and Applicable Professional Standards (No. 055297CPA07), provides guidance to help CPAs understand and comply with the applicable standards, rules and laws. Issued by the AICPA's Responsibilities of Litigation Practitioners Task Force and the Litigation and Dispute Resolution Subcommittee, it includes sections addressing conflicts of interest, work paper form and content, and reporting.

* The AICPA's new online Fair Value Measurement Toolkit for FASB Statement of Financial Accounting Standards (SFAS) No. 141 and SFAS No. 142 contains practical reference materials to perform fair value measurement engagements in connection with business combinations and acquired goodwill and other intangible assets. To aid in complying with FASB's new statements, the toolkit includes training information, excerpts from the FASB statements, a bibliography of important reference sources, engagement letter considerations, checklists and other tools. The toolkit can be accessed at:

www.aicpa.org/members/div/mcs/vm_toolkit.asp

* Non-authoritative guidance for auditing fair value measurements and disclosures under FASB Statements Nos. 141, 142 and 144 was issued by the AICPA Audit and Attest Standards Team. The online toolkit is available without charge from:

www.aicpa.org/members/div/auditstd/0212_toolkit.asp

* To build awareness about privacy issues among CPAs, the AICPA developed an online resource that explains the risks associated with privacy, the benefits of good privacy practices and how privacy can be used by businesses for a competitive advantage. Visit the privacy page (www.aicpa.org/innovation/ baas/ewp/homepage.htm) and then link to the CPA2Biz Privacy Resource Center at www.cpa2biz.com/Resource Centers/Information+Security/Privacy/default.htm. Guidance, such as a primer called Privacy Matters: An Introduction to Personal Information Protection, a brochure on 20 questions businesses need to ask about privacy, and a brochure with an overview of HIPAA, are available from the resource center.

* A growing number of companies have begun reporting their financial statements in eXtensible Business Reporting Language format, which was developed and promoted by a consortium co-founded by the AICPA. In addition, this past year, several banks, accounting firms, software developers and small businesses began collaborating on a pilot program to explore XBRL-formatted filings used by lending institutions for credit analysis on loans to small and medium-sized businesses. Moreover, a U.S. Financial Reporting Taxonomy Framework and U.S. GAAP Commercial and Industrial Taxonomy were released and can be found at:

www.aicpa.org/exposure/xbrl_taxonomy.asp

* The AICPA Competency Self-Assessment Tool makes it possible for members to understand their existing competencies, identify learning opportunities and plot their career paths. Users can choose from six different competency models against which to measure their skills and knowledge--business and industry, audit, government, personal financial planning, fraud prevention and detection, and elder care. The tool is available at:

www.cpa2biz.com/cat

* A series of Webcasts were aimed at keeping members informed about key issues, including new SEC developments, antifraud concerns and topics of importance to senior financial executives. For a current line up, visit www.cpa2biz.com/webcasts.

* The Institute's online learning library, AICPA Infobytes, was selected by Accounting Today as one of its Top 100 Products for 2003. To learn about AICPA Infobytes and a special free trial offer, go to:

www.cpa2biz.com/infobytes

* PCPS/AICPA Alliance for CPA Firms partnered with the Texas Society of CPAs to offer the 2002 Management of an Accounting Practice Survey. The survey, which gathered data from some 2,500 respondent firms across the U.S., offers respondents the opportunity to benchmark their policies and performances with other firms of similar size and geographic region.

Public Service Efforts

* The AICPA and the National Endowment for Financial Education together developed a guide to help people recover from financial loss after a disaster. Disaster Recovery: A Guide to Financial Issues is offered free by local American Red Cross chapters. The AICPA has also developed a communications toolkit that contains media relations tools to assist a CPA in communicating with local news media about the disaster recovery guide and the CPA's involvement in the program. For additional information about the guide and to access the Marketing and Communications Toolkit, visit:

www.cpa2biz.com/pfp

* Prudent Investment Practices: A Handbook for Investment Fiduciaries was written by the Foundation for Fiduciary Studies and technically reviewed by the AICPA. The new handbook, a reference guide targeted at knowledgeable investment decision makers--including CPAs--covers 27 practices gathered from state and local legislation, regulatory opinion letters and relevant case law. A companion document, Legal Memorandums for Prudent Investment Practices, provides the legal memorandums for each of the 27 practices. For more information about the handbook, visit www.cpa2biz.com/pfp. To order additional bound copies of the handbook and legal memorandums, visit:

www.ffstudies.org 866/390-5080

* The AICPA in Jan. ran its second "Women's Financial Health Week" public education campaign in support of the Personal Financial Specialist credential. A custom Web site, www.womensfinancialhealthweek. com, received more than 13,000 hits, a 36% increase over last year. Money magazine co-sponsored the campaign.

* Once again, Institute members participated in USA Today's tax hotline and its weekly online tax chats conducted throughout the filing season. This effort allows CPAs a chance to provide a valuable public service and the profession is showcased through the paper's coverage of the events.

Professional Image/Enhancements to the Profession

* In an effort to attract the best future CPAs, the Institute kicked off the second year of a five-year marketing communications campaign aimed at 16- to 22-year-olds. Research has found that of all college students who requested further information, 33% said they are now more likely to consider accounting as a major or profession. Sixty-two percent of early college students and 70% of late college students surveyed recalled the CPA recruitment campaign. Successful ongoing campaign features include the interactive MP3/Be A Music Mogul Game, a Summer Dream Internship Contest and a host of other elements designed to drive students to the centerpiece of the recruitment campaign, the www.StartHereGoPlaces.com Web site. The site has received roughly 2.9 million page views since it was launched about a year-and-a-half ago.

* The Institute conducted a national research initiative to learn how business decision makers and investors perceive CPAs following the corporate accounting scandals. All told, while the profession suffered some damage to its reputation, CPAs largely remain respected and trusted--especially on an individual level with their clients. The Institute will use the findings in ongoing image enhancement efforts.

* Three new print ads for use by state societies were designed specifically to address the challenges facing the profession. The Institute created the ads for the benefit of the members in small and medium-sized businesses and firms. They demonstrate the value that CPAs bring to their employers and clients, the general public and the U.S. economy.

* To ensure continued protection of the public interest in a rapidly changing business world, the Institute announced that the Uniform CPA Examination is being revised and will be given in a computer-based format beginning in Apr. 2004. These changes will keep the exam aligned with the knowledge and skills required of entry-level CPAs, increase emphasis on information technology and general business knowledge with a broadened scope in the audit area, and allow the exam to be offered more frequently. Visit www.cpa-exam.org to follow progress on the computer-based exam.

* In response to comments from many CPAs, state CPA societies and AICPA leadership, H&R Block agreed to pull an ad promoting its tax services that depicted the CPA profession in a disparaging light.

Legislative Issues

* The Institute expressed support for two bills, H.R. 22 and H.R. 285, that would simplify sections of the Internal Revenue Code affecting individuals, small businesses and U.S. companies doing business overseas.

* The AICPA took an active role in congressional efforts to define and prevent abusive tax shelters. Institute involvement has included testimony before and comments to House and Senate committees. Information on the Institute's position on the subject, including the Senate bill's proposed new process for defining transactions that lack "economic substance," is available at:

www.aicpa.org/members/div/tax/index.htm

* During last year's congressional debate on pension reform in light of the events at Enron, the AICPA recommended to Congress that plan communications and employee education be enhanced and that employees' investment choices should not be limited.

* The AICPA is supporting H.R. 1119, a bill that would allow employers to give their hourly employees comp time off in lieu of overtime pay. The AICPA endorsed the bill in a letter to House members ahead of a vote expected in the House sometime this summer. To read the letter, visit:

www.aicpa.org/belt/comptime_legis.asp