AICPA President Calls for Rejuvenated Accounting Culture.

Business Editors

NEW YORK--(BUSINESS WIRE)--Sept. 4, 2002

American Institute of Certified Public Accountants Focuses on

Stronger Fraud Detection Measures and Improved Financial Reporting

American Institute of CPAs (AICPA) President and CEO Barry C. Melancon today called upon members of the accounting profession to rejuvenate the profession's culture and participate in restoring its reputation.

Mr. Melancon's remarks came in an address made to a forum convened by the Yale Graduate School of Management and were his first public statements since President Bush signed the Corporate and Auditing Accountability, Responsibility, and Transparency Act of 2002 (Sarbanes-Oxley Act) into law on July 30, 2002.

"What is needed is not just reform of the accounting laws, it is a rejuvenated accounting culture - both internally in corporate finance offices and externally in audit firms," said Mr. Melancon. "The culture must build upon the profession's traditional values. We are determined to demonstrate that auditors can and indeed do say `no.' Because only if auditors are fully prepared to say `no' to management will investors be fully prepared to say `yes' to the markets.

"Recent corporate scandals have been painful to the overwhelming majority of auditors who provide independent, objective judgments to public companies and insist upon full disclosure to investors. It has also been painful to the vast body of CPAs in public practice - CPAs who are not by and large involved in auditing publicly traded companies, but who concentrate on providing good advice and quality services to individuals and small businesses.

"But, hundreds of thousands of good `apples' do not excuse the behavior of a few bad ones. Make no mistake about it; our profession was part of the problem and it came to embody the public's perception of the problem. Now we intend to be a part of the solution," said Mr. Melancon.

Mr. Melancon's remarks reflect the conclusions drawn by representatives of the profession, the AICPA board, and senior members of the Institute's management in a series of strategic planning sessions held this spring and summer.

"At this critical juncture in corporate governance and financial reporting, leadership can make all the difference," said Rick Antle, Senior Associate Dean and Professor of Accounting at Yale University, who organized the forum. "The American Institute of CPAs is in a unique position to play a vital lead role in guiding the accounting profession to make appropriate responses to the challenges it faces."

In his remarks, Mr. Melancon identified six key roles that the AICPA will play in the wake of the new legislation: in standard setting, in the area of improved financial reporting, as a liaison between market institutions and corporations, in research, in education, and in promoting strong corporate governance and internal control systems. He also reported on a series of initiatives to be undertaken by AICPA, either alone or in concert with other business organizations, as a key participant in the financial reporting process. These include:

Stronger Fraud-Detection Measures

Mr. Melancon announced that the AICPA in conjunction with the University of Texas at Austin and the Association of Certified Fraud Examiners will establish an Institute for Fraud Studies to enhance investor education and to examine ways investors can help protect themselves against fraud. The AICPA calls upon other leaders in corporate America and CPA firms to participate in this initiative.

Additionally, in the area of fraud detection, the AICPA:

-- initiating a debate within the accounting community on how to differentiate between the needs of large and small companies and how to reform GAAP to reflect this reality;

-- working with the Canadian Institute of Chartered Accountants to develop the Value Measurement and Reporting Collaborative, which will bring together stakeholders in the financial reporting process from around the world to determine the best methodologies for value measurements and reporting; and

-- increasing dialogue with the Financial Accounting Standards Board to encourage the development of an improved reporting model that will provide investors with higher-quality information.

Improved Financial Reporting

The AICPA is working to achieve more transparent financial reporting by calling on the Auditing Standards Board to revise existing internal control and reporting standards to include such reportable conditions as one individual holding the dual positions of Chairman of the Board and CEO, an audit committee that is not fulfilling its mission, a lack of mandatory anti-fraud education or the lack of an Ethical Code of Conduct. In this manner, the public will be put on notice when the auditor communicates internal control weaknesses to the audit committee.

The AICPA is also:

-- initiating a debate within the accounting community on how to differentiate between the needs of large and small companies and how to reform GAAP to reflect this reality;

-- working with the Canadian Institute of Chartered Accountants to develop the Value Measurement and Reporting Collaborative, which will bring together stakeholders in the financial reporting process from around the world to determine the best methodologies for value measurements and reporting; and

-- increasing dialogue with the Financial Accounting Standards Board to encourage the development of an improved reporting model that will provide investors with higher-quality information.

Other Measures

The AICPA is developing new guidance regarding an auditor's potential dependency on fees from large clients, including discussion with audit committees about potential dependency and expanded rotation requirements for key personnel. The guidance would also consider compensation policies that reward partners primarily based on auditing proficiencies, and policies that prevent a firm from penalizing a partner who says "no" at the risk of losing a client.

"We realize that no single initiative will rebuild investor confidence; no single magic bullet will put fraud or malfeasance to rest. The path toward restoring investor confidence is a long one. It must be put in place brick by brick," said Mr. Melancon. "We look forward to implementing these initiatives, which will help shape an accounting culture for the future that matches and surpasses the legacy of our past - a legacy of objectivity and independence."

About the AICPA

The AICPA (www.aicpa.org) is the ISO 9001 certified national professional organization of CPAs, with about 350,000 members in business and industry, public practice, government, and education. It sets U.S. auditing and professional ethical standards and, with the Financial Accounting Standards Board, U.S. accounting standards.