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30-day exposure. All three of those are pronouncements of the Board.

Only one, the first one; meets your definition of a statement.

Mr. WILSON. Can you tell us whether the full panoply of process that is given to an FASB statement was given to the letter to Mr. Sampson that was issued March 28, 1986? What type of consideration was it given before it was issued?

Mr. LEISENRING. That should be considered for exactly for what it is: a letter from the staff of the FASB to the Chief Accountant of the SEC. Because of the sensitivity of the issue and its importance in our mind and perhaps even its controversy, we took a step that is unusual for us because we often do write letters on technical matters.

In this circumstance we discussed it at a Board meeting and asked whether there were Board members that objected to the views that were expressed in the letter to Mr. Sampson.

There were none and I think the supplemental letter from Mr. Kirk indicates that. That is a rather unusual step for us but we tried to deal with the situation as expeditiously as possible because of the particular registrant and circumstance that Mr. Sampson's office was trying to deal with.

Mr. WILSON. So this letter does not have nearly the dignity of a formal statement by Financial Accounting Standards Board. Mr. LEISENRING. I think that is correct.

Mr. KIRK. We hope it has the dignity, but not the standing. Mr. WILSON. Might at some point the FASB elect to treat accounting for things like income capital certificates or permanent income capital certificates with the full treatment of a statement? Mr. KIRK. That is a good question. Let me try that one. In the first hearing I appeared, Representative Wyden asked me if we were concerned about our pronouncements becoming like the Internal Revenue Code and revenue rulings, large in number and frequent in their issuance. We said we were trying to avoid that.

We have developed a number of short cuts which we hope would at least push practice in a certain direction. Jim chairs our Emerging Issues Task Force. There are some tentative decisions that are made by that group which we hope pushes practice in a certain direction.

We hope in the same way that this letter would do that as well and that possible actions by the regulatory bodies would suffice. Mr. WILSON. Mr. Chairman, I have no further questions. Thank you very much.

Mr. WYDEN. Well, gentlemen, just one last point. We have heard in the last 4 hours about PICC's, Permanent Income Capital Certificates, we have heard about the ICC's, Income Capital Certificates, we have heard about NWC's, Net Worth Certificates. I am told by the staff that there are things called MICC's, Mutual Capital Certificates, and FSLIC capital certificates, and the list just goes on and on.

I would like to ask one wrap-up question. I assume there are all kinds of clever, ingenious lawyers looking at all kinds of new approaches beyond these kinds of things. My question to you, Mr. Kirk, is whatever it is called, will you make a commitment to the

subcommittee that you won't permit paper equity to go onto the books as real equity?

That is what we are really interested in.

Mr. KIRK. I can assure you if we examine it and are convinced it is not real equity, we will so state and do it as promptly as we can. Mr. WYDEN. We want to make sure that there is a clear pronouncement on this issue. It is important to the subcommittee. As I said, I am convinced there are all kinds of ingenious people trying to look at different versions of the ICC concept in one sort or another. So am I to understand that whatever it is called you are not going to allow paper equity to go on to the books as real equity? Mr. KIRK. If we don't believe it has substance, we will so state. Mr. WYDEN. Anything either of our other witnesses would like to add?

We thank you very much for your patience-it has been a long hearing-and for your participation. The subcommittee is adjourned.

[Whereupon, at 1:50 p.m., the subcommittee adjourned, to reconvene at the call of the Chair.]

[The following letter was received:]

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In the course of the hearing of the Subcommittee on Oversight and Investigations on April 24, 1986, the suggestion was made that my representation of Citizens Financial Savings and Loan in connection with its effort to secure approval by the Financial Accounting Standards Board of a certain accounting treatment in connection with the purchase by the Federal Savings and Loan Insurance Corporation of permanent income capital certificates was in conflict with my position as a member of the Public Oversight Board. Furthermore, there was an implication that there was some impropriety in our requesting confidential treatment by the SEC of documents submitted to the SEC in connection with this matter.

I respectfully suggest that my representation of Citizens Financial in this matter was not in conflict with my activities and responsibilities as a member of the Public Oversight Board, and further, that request for confidential treatment of documents submitted to the Commission was totally proper.

As I am sure you understand, while indeed I am paid for my services as a member of the Public Oversight Board, my position is a part-time one and I am compensated accordingly. When the Board was created, it was expected that its members, unless retired, would be otherwise gainfully employed.

MORGAN, LEWIS & BOCKIUS

May 5, 1986
Page 2

The Public Oversight Board oversees the activities of -the SEC Practice Section of the AICPA Division of CPA Firms. The principal activity of the SEC Practice Section is the peer review program, which was explained, you will recall, at an earlier hearing of the Oversight and Investigations Subcommittee held on March 6. The purpose of the peer review program is to determine whether firms which are members of the Section have appropriate quality control standards for their audit work and whether they comply with those standards. Neither the Board nor the Section has any involvement in, responsibility for, or jurisdiction over the establishment of accounting principles. Under an arrangement that has existed since 1972, the Financial Accounting Standards Board, under the oversight of the SEC, is the body which establishes accounting principles. This body is totally independent of the AICPA. None of the work of the Public Oversight Board or the SEC Practice Section touches upon the work of the FASB. Furthermore, the Public Oversight Board and the SEC Practice Section have no jurisdiction over or responsibility for savings and loans or their accounting practices.

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The essence of a conflict of interest is having

interests in, or representing interests on, more than one side of a matter, either at the same time, or at different times as may happen when one has been involved with a matter while in government service and then leaves and represents the other side in the same matter. The matter as to which I represented Citizens Financial is the interpretation of accounting principles as applied to savings and loans; the matters with respect to which I act as a member of the Public Oversight Board involve standards adopted by accounting firms to assure their audits are properly done. The Board has no interest or concern whatsoever in what the FASB does or the way Citizens records transactions; similarly Citizens and the FASB have no interest at all in what the Board does. How then can there be a conflict of interest if the Board and Citizens don't have interests in the same matter?

I

Prior to accepting appointment to the Public Oversight Board I very carefully reviewed the implications of that membership with regard to my capacity to function as a lawyer. determined that indeed certain representations would probably be denied me if I accepted the post. Realizing that I might at some point have to pay such a penalty I nonetheless accepted the appointment. Since that time, I have scrupulously abided by the highest standards of conduct in avoiding any semblance of conflict. Before accepting the representation of Citizens I reflected carefully upon the implications of that in the light of

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my membership on the Board and concluded that that representation - lay far beyond any possible implication of conflict. Having made that judgment, I was more than a little surprised to have the suggestion made at the hearing that there was indeed a conflict.

I do not think that anyone who understands the role of the Public Oversight Board and the nature of my representation of Citizens Financial should have any perception of conflict.

With regard to the request for confidential treatment, this was done principally because the papers submitted to the SEC related to a pending transaction which had not yet been publicly disclosed and which the parties felt it would be inappropriate to disclose before the accounting issue was resolved. Consequently, to honor their perfectly legitimate concerns, we requested confidential treatment, recognizing, of course, that whether such treatment would be accorded the documents furnished to the Commission was a matter to be decided by the Commission.

If I can furnish you with further analysis or information with regard to this matter, please feel free to call

me.

I respectfully request that this letter be included in the record of the Subcommittee's hearing on April 24, 1986.

AAS/mbl

CC:

See attached list

Yours very truly,

A. A. Sommer, Jr.

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