We concur with the Cohen Commission's recommendation for a full-time board, composed mostly of members with "substantial and diverse audit experience, including experience in audits of companies whose securities are publicly traded." We believe this board should appoint task forces to assist in its consideration of particular subjects. The Cohen Commission suggests that task forces be composed of AICPA members. We believe, however, that task forces should include substantial representation from outside the profession of persons knowledgeable in subjects being considered. In addition, we suggest that the exposure process for proposed auditing standards be expanded through greater publicity and additional educational effort. A full-time board will require substantial funding. Problems in obtaining this funding are similar to those of obtaining funding for the FASB, discussed in recommendation C below.

B. The FASB should increase its efforts to achieve greater public involvement in its deliberations.

We propose, as we have previously suggested to the FASB, that the Board revise the format for exposing issues to the public. The Board presently releases complex documents called discussion memoranda that pose a host of questions germane to the issues being considered. These discussion memoranda are hard to deal with and respond to; first, because of the sheer number of questions (they can easily run over 100) and, second, because an individual question may be hard to think about and answer in isolation from all the other questions.

We believe that people could respond more easily and constructively to a given issue if the Board would publish (for comment) two or more integrated statements of position in much the same form as an exposure draft. This could be either concurrent with or in lieu of a discussion memorandum. make it possible for respondents to endorse, object to, or propose revision to some or all of the alternative draft standards.

This will

Adoption of the Structure Committee's proposal for concise discussions of the issues in layman's language will be helpful. In addition, we suggest that both discussion memoranda and summaries of issues contain clear statements of the problems perceived in present practice.

We think it would be worthwhile for there to be an expanded educational function concerning issues before the Board, but we do not believe that Board members should spend their time in this activity. We suggest instead that seminars and discussion groups to consider Board proposals be organized by universities, chapters of the Financial Executives Institute, State Societies of CPAs, and other interested groups.

C.

If users of financial information perceive that the large
accounting firms' substantial contributions to the FASB may
impair the Board's independence, the users should devise an
alternative funding method.

We support the Structure Committee's call for a broader basis
of financial support for the FASB. We are willing to contin-
ue our support, but we believe that, if users of financial
information think our doing so may impair the Board's indepen-
dence, it would be appropriate for such groups as the stock
exchanges, the Financial Analysts Federation, investment bank-
ers, and commercial banks to work closely with the Financial
Accounting Foundation to devise a method and increase the amount
of voluntary contributions from sources other than accounting
firms.

D.

When the SEC sets accounting standards, it should follow rulemaking procedures provided by law.

In some instances, members of the Commission's staff have been able, informally, to impose accounting standards that have not been adopted pursuant to the Commission's established rulemaking procedures. In doing this, they have used the Commission's power to delay the registration process (technically, by refusing to grant acceleration of the effective date of a registration statement). In these instances, a member of the SEC's staff has taken a position on an issue of disclosure or some other accounting matter that was contrary to a registrant's position, adopted in financial statements included in a registration statement. In almost all instances, in order to be able to complete the financing, the registrant acquiesced to the staff's position even while disagreeing with it. Recently the Commission's staff has begun issuing a series of "Staff Accounting Bulletins." These Bulletins do not go through the Commission's official rulemaking process, but they are applied by the members of the Commission's staff as if they were binding rules. Often, these Bulletins are applied under circumstances, such as those described above, in which registrants and their auditors do not have an adequate opportunity to object. We suggest that the staff of the SEC be instructed to follow the rulemaking procedures provided by law and refrain from applying previously unpublished standards and interpretations in specific cases and from issuing Staff

Accounting Bulletins.

E. Congress should urge government agencies to furnish independent public accountants with information useful in audits. Many government agencies do not furnish independent auditors useful information. Examples include failure to respond to audit inquiries concerning clients' receivables, refusal by

the Internal Revenue Service to disclose the status of tax examinations, and refusal by the enforcement division of the SEC to disclose whether their investigations have disclosed information that may materially affect financial statements being examined. Congress should encourage all government agencies to respond to auditors' inquiries and to undertake a positive duty to inform the auditors of a public corporation of any matter that comes to their attention which in the view of the agency could have a material affect on the company's financial statements.

F. Government and the AICPA should mount a massive effort to end unsatisfactory practices in the financial statements of governments.

Emphasis should be placed on recording of all assets and liabilities, on improved disclosure as to commitments and other important matters, and on condensation and clarification of the voluminous material now being prepared. Participation by government representatives should be encouraged, but those who wish merely to perpetuate the status quo should be excluded.

ALLEGATIONS AGAINST
ARTHUR YOUNG & COMPANY

Pages 57 and 58 of the Staff Study discuss matters the Staff calls "illustrative questionable activities" of Arthur Young & Company. The allegations reflect a lack of research on the part of the Staff and are based in part on misconceptions resulting from uncritical use by the Staff of the writings of Professor Briloff. Four items are discussed in this section. An additional item, Arthur Young & Company's review of the audit quality controls of Peat, Marwick, Mitchell & Co., is discussed beginning on page 61 in the chapter on Regulation of the Accounting Profession.