[Federal Register Volume 64, Number 245 (Wednesday, December 22, 1999)]
[Notices]
[Pages 71785-71786]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-33114]
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FEDERAL COMMUNICATIONS COMMISSION
[DA 99-2674]
Responsible Accounting Officer: Re: Auditor Independence and
Objectivity
AGENCY: Federal Communications Commission.
ACTION: Notice.
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SUMMARY: This document discusses the importance of independence and
objectivity in the performance of audit work required by the Commission
and adopts, as modified for Commission purposes, Standard No. 1 of the
Independence Standards Board, which requires auditors to disclose and
discuss potential independence problems.
DATES: May 22, 2000.
ADDRESSES: Federal Communications Commission, 445-12th Street, SW, TW-
A325, Washington, DC 20554.
FOR FURTHER INFORMATION CONTACT: Mark Stone, Accounting Safeguards
Division, Common Carrier Bureau, (202) 418-0816.
SUPPLEMENTARY INFORMATION: This Notice, was adopted and released on
December 1, 1999. The full text of this Commission decision is
available for inspection and copying during normal business hours in
the FCC Reference Center (Room CY-A257), 445 12th Street NW,
Washington, DC 20554. The complete text may also be purchased from the
Commission's copy contractor, International Transcription Service,
Inc., 1231 20th Street, Washington, DC 20036, telephone (202) 857-3800.
Summary of Responsible Accounting Officer Letter
I. Introduction
The Commission relies on outside auditors to verify carrier
compliance with a variety of Commission rules. For this to be
effective, the Commission needs to be confident that the auditors are
acting independently and that the opinions expressed by the auditors
are objective and unbiased. This Responsible Accounting Officer (RAO)
letter discusses the importance of independence and objectivity in the
performance of audit work required by the Commission and adopts, as
modified for Commission purposes, Standard No. 1 of the Independence
Standards Board, which requires auditors to disclose and discuss
potential independence problems.
II. Background
In the Joint Cost Order, adopted in 1988, 53 FR 49320 (December 7,
1988), the Commission required large local exchange carriers to obtain
independent audits to verify that their systems for allocating costs
between regulated and nonregulated activities accurately reflected the
procedures set forth in their cost allocation manuals and application
of the Commission's rules. The Commission expressed concern in the
Joint Cost Order that independence problems might arise, but the
Commission declined to choose the independent auditors for the
carriers, instead relying on the auditors' standards of professional
conduct to mitigate its concerns. The Commission stated that it would
review the auditors' work and ``take appropriate corrective action if
[it had] reason to believe that a particular firm has not performed its
task in an objective and competent manner.'' Since that initial
requirement was adopted in 1988, the Commission has added many other
instances in which independent audits are relied upon to assure
compliance with its rules.
Auditors are governed by standards of professional conduct that
require them to remain objective toward and independent of the audited
company. Those standards emphasize independence and objectivity in both
fact and appearance, reflecting the practical view that, even if
independent in fact, auditors should avoid even the appearance of bias
so that those who rely on the results of their audits can be confident
in their work.
Consulting and advocacy by accounting firms has increased
substantially in recent years. In many instances, carriers use the same
accounting firms to advocate positions on issues before the Commission
that they engage to perform independent audits. Advocacy or support on
behalf of a carrier concerning issues before the Commission,
particularly with respect to auditing or accounting matters, could
raise concerns and questions about the independence and objectivity of
the auditors.
III. Discussion
To address the independence implications for the new consulting and
advocacy services provided by auditors, the Securities and Exchange
Commission and the American Institute of Certified Public Accountants
recently established the Independence Standards Board (ISB). The
initial standard of the ISB, Standard No. 1--Independence Discussions
with Audit Committees, requires the following:
At least annually, independent auditors shall:
(a) Disclose to the audit committee (or the board of directors if
there is no audit committee), in writing, all relationships between the
auditor and its related entities and the company and its related
entities that in the auditor's professional judgment may reasonably be
thought to bear on independence;
(b) Confirm in writing that in its professional judgment it is
independent of the company within the meaning of the Securities Acts;
and
(c) Discuss the auditor's independence with the audit committee.
We believe that Standard No. 1 can be adapted to address in part
the Commission's concern about auditor independence. The Commission's
concern that audits be performed with independence and objectivity
mirror the concern of audit committees that are responsible for
engaging independent auditors for corporations. Therefore we establish
the following standard based on ISB's Standard No. 1. For independent
audits performed pursuant to Part 32 and Sections 64.901 et seq. of the
Commission's rules, the auditor shall at least annually:
(a) Disclose to the Accounting Safeguards Division (ASD) of the
Common Carrier Bureau in writing all relationships between the auditor
and its related entities and the carrier and its related entities that
in the auditor's professional judgment may reasonably be thought to
bear on independence;
(b) Confirm in writing to AS that in its professional judgment it
is independent of the carrier; and
(c) Discuss the auditor's independence with ASD.
Creation of the Independence Standards Board is an encouraging sign
[[Page 71786]]
of the profession's desire to preserve the independence and objectivity
of auditors. Although adoption of Standard No. 1 alone may not be
enough to satisfy the Commission's concerns, it should lead to a frank
and open dialogue that will benefit both the Commission and the
auditors.
Because items in this RAO letter pertain to the collection of
information, Office of Management and Budget (OMB) approval of the
proposed collection is required by the Paperwork Reduction Act of 1995.
Under the Paperwork Reduction Act, members of the public are not
required to respond to a collection of information sponsored by the
Federal government, and the government may not conduct or sponsor a
collection, unless the information collection contains a currently
valid OMB control number. Accordingly, independent auditors will not be
required to comply with this RAO until OMB has given such approval. ASD
will notify the public when OMB has approved the proposed information
collection.
This letter is issued pursuant to authority delegated under Section
0.291 of the Commission's rules, 47 CFR 0.291. Applications for review
under Section 1.115 of the Commission's rules, 47 CFR 1.115, must be
filed within 30 days of the date of this letter. See 47 CFR 1.4(b)(2).
Federal Communications Commission.
Kenneth P. Moran,
Chief, Accounting Safeguards Division, Common Carrier Bureau.
[FR Doc. 99-33114 Filed 12-21-99; 8:45 am]
BILLING CODE 6701-12-M