AICPA clarifies concurring partner role.

"Right now, we'll live with it," said Richard Miller, AICPA general counsel and secretary of the board of directors, when asked about the Supreme Court's denial of Robert D. Potts' petition for review of a federal appeals court's decision. The court upheld an SEC sanction against Potts for recklessness as a concurring partner. (See "CPA Sanctioned on Concurring Review," JofA, Dec.98, page 20.) Even though Miller was disappointed by the May 3 decision, he was not surprised. "The Supreme Court gets a lot of cases and hears only a small percentage of them. On another day, it may take on a case like Potts."

Despite this setback, the profession can at least look forward to clearer guidance in the future. The auditing standards board (ASB) and the SEC practice section (SECPS) of the AICPA division for CPA firms have been working on new procedures for concurring partner reviews with the SEC's blessing. With general agreement on a concurring partner's review responsibilities, an issue such as that raised by the Potts case is not likely to recur.

The AICPA had filed an amicus curiae brief supporting Potts, who was given a nine-month suspension by the SEC for his role in the 1988 and 1989 audits of Kahler Corp., a hotel operator. Potts, who at the time was a partner at Touche Ross and its successor Deloitte & Touche, signed off on the audits. His "improper professional conduct" stemmed from the accounting treatment of University Park Hotel (a 1987 acquisition of Kahler's), which resulted in incorrect net gain and loss realization, erroneous classification of the interest as an asset for sale and improper application of accounting method dates. The SEC determined that Potts had deviated from GAAP and GAAS and was negligent in his duties as an independent auditor.

Potts argued in his appeals statement that the SEC had erred in attributing GAAS status to SECPS guidelines, in applying GAAS requirements to his conduct and in failing to consider whether such conduct in fact presented a threat to SEC processes.

Potts is significant to the accounting profession because it paves the way for broad interpretation and censorship by the SEC of accountants' performance. The case also infringes on the profession's self-regulatory status (which it steadily defends) and restricts auditors in their ability to respond to the natural ebb and flow of audit engagements without fear of a SEC disciplinary action.

David Brumbeloe, director of the AICPA's SEC practice section, noted there have been at least three instances since Potts in which the SEC charged concurring partners with negligence. This prompted the SECPS to revisit its guidelines for concurring partner reviews. While providing guidance is within the profession's domain, the SECPS welcomed SEC input and invited commission representatives to participate on a task force addressing concurring partner reviews.