Fitch: U.S. Audit Reforms Improve Financial Reporting Outlook, But Can Heighten S-T Restatement Risk.

Business Editors

NEW YORK--(BUSINESS WIRE)--March 9, 2004

The last few years have underscored dramatically the close nexus that exists between audit failure and credit risk. According to a new report from Fitch Ratings, while there is a positive trend as the accounting profession re-engages its core mission, in the short-term, trends in auditing, standard setting and financial innovation present the potential for restatements due to greater audit scrutiny and regulatory oversight.

'The audit profession is undergoing fundamental change due to market-based reforms and Public Company Accounting Oversight Board standards-setting. Rediscovering the profession's core mission is and will continue to be critical,' said Joseph St. Denis, Senior Director, Accounting Research and Policy, Fitch Ratings. 'Accounting and audit reforms will continue to be crucial to financial markets, as we believe the future of financial reporting lies in less emphasis on point-estimates of net income, and more focus on internal controls, economic substance and disaggregated disclosure sufficient to allow investors to form their own conclusions about an entity's financial condition and future prospects.'

A summary of reform ideas are put forth by Fitch in a new report entitled 'Accounting and Financial Reporting Risk: 2004 Outlook,' and include:

Improve and Enhance the Audit Report:

-- This could be accomplished in a variety of ways, including

having the auditor describe material areas where judgment was

used in the preparation of the financial statements, and

pointing out any new or different disclosures.

Emphasize the Auditor's Responsibility to Report on Economic Substance, Transparency, and Internal Control:

-- Recent events suggest that a 'rules-based' or 'minimum

compliance' approach to the application of generally accepted

accounting principles can produce financial statements that,

while technically in compliance with GAAP rules, are

materially misleading in their emphasis on legal form over

economic substance.

Focus Standard Setting on Audit Effectiveness:

-- The PCAOB's standards-setting and inspection process represent

significant progress in this area.

The new report is available on the Fitch Ratings web site at 'www.fitchratings.com'.