[Federal Register: December 22, 1999 (Volume 64, Number 245)]
[Notices]               
[Page 71785-71786]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22de99-93]                         

-----------------------------------------------------------------------

FEDERAL COMMUNICATIONS COMMISSION

[DA 99-2674]

 
Responsible Accounting Officer: Re: Auditor Independence and 
Objectivity

AGENCY: Federal Communications Commission.

ACTION: Notice.

-----------------------------------------------------------------------

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