January 16, 2002

To Members of the AICPA:

As you are aware, the bankruptcy of Enron has put unprecedented focus on the accounting profession and its self-regulatory system. The AICPA, in recognition of its public interest responsibilities, and at the insistence of the SEC, is developing a new regulatory model that represents a significant and substantive change from current self-regulatory processes. This model would affect all firms doing SEC audits.

The accounting profession has a successful, 100-year tradition of self-regulation, which has contributed to the most respected financial reporting system in the world. This is a tradition to which we have been and are deeply committed. To maintain this commitment to excellence and support public confidence in America's security markets, we have always responded to valid criticisms and addressed market changes and environmental issues that demanded our scrutiny.

With this commitment in mind, we are diligently working to improve the profession's peer review and disciplinary process as it relates to auditors of SEC registrants. Our objectives are to include public participation and increase transparency, effectiveness, and timeliness.

While the current self-regulatory model provides for significant public oversight over the SECPS peer review process, there is no public oversight over discipline. Under the new model being explored, there would be significant public participation in the peer review and disciplinary systems for members and firms auditing SEC registrants.

The new disciplinary and peer review system for members and firms auditing SEC registrants would be managed by a Board, a majority of whom would be public members.

The new peer review system would enhance the reviews for the largest firms, requiring a more rigorous and continuous form of monitoring the quality of the audit process. The reviews would be administered by the staff of the new Board.

On Thursday, January 17, 2002, SEC Chairman Harvey Pitt will hold a press conference regarding these matters. As a result, we expect stories to run in all national and trade media. The developments over the next few weeks and months will no doubt be rapid. We will keep you updated through www.aicpa.org as solutions are solidified.

The AICPA has been and will remain actively engaged in developing a new model for those conducting SEC audits and in demonstrating leadership and responsibility to the public interest.

James G. Castellano, CPA
Chair of the AICPA Board of Directors

Barry C. Melancon, CPA
AICPA President and CEO