(The news featured below is a selection from the news covered in the Federal Securities Report Letter, which is distributed to subscribers of the Federal Securities Law Reports.)

SEC Chief Accountant Views Public Company Accounting Oversight Board

The new Public Company Accounting Oversight Board established by the Sarbanes-Oxley Act is working on an operating plan to implement its mandate, noted Jackson Day, acting SEC chief accountant. With regard to standard setting, the first question is whether the board will set its own standards or adopt standards recommended by an advisory group. Regardless of that decision, noted Mr. Day, the SEC must approve any new rules that are issued. He spoke before the New York State Society of Certified Public Accountants.

In his view, implementation of a quality inspection program may be the oversight board's most important challenge. While the Sarbanes-Oxley Act provides that the largest firms must be inspected each year and other firms every third year, the board must decide how many partners will be reviewed each time the firm is reviewed, what functions will be reviewed, and whether risk will be a determinate in answering those questions. The board also must also consider the effects of its timing in light of the seasonality of the auditing business.

There is also the question of who will perform the inspections. The oversight board must determine if it will perform all inspections or contract some of them out, said the chief accountant, and what effect the required internal inspections should have on their work. They also must address the issue of resources and how to get the expertise necessary to address issues such as computer auditing, independence, client acceptance and continuance, technical accounting consultations, and auditing fair value estimates.

While the Sarbanes-Oxley Act provides the oversight board with substantial disciplinary powers related to misconduct of accountants, continued Mr. Day, it is intended that the board's disciplinary powers will complement, not replace, the SEC enforcement division's efforts. Thus, issues such as interaction with the Commission, and what remedial actions to take to promote higher quality audits, must be addressed.

Under the act, registrants will fund both the oversight board and the FASB. And, in the case of the oversight board, noted the SEC official, the accountants and the accounting firms that serve public companies will chip in too. Mr. Day emphasized that the Commission and its staff will continue to oversee the FASB. The FASB will not be under the umbrella of the oversight board, he assured, even though registrants ultimately may receive a single bill for the funding of the two operations.