September 6, 2002

Dear Fellow CPA:

For over a century, our profession has enjoyed a reputation as America's most trusted financial advisors and guardians of the public trust. Yet, following Enron, WorldCom and other high profile business failures, our greatest asset-public confidence-as well as our long history of self-regulation, has been called into question. In the wake of this turbulent environment, President Bush signed into law on July 30, sweeping changes to the accounting profession and the business community-the Sarbanes-Oxley Act of 2002.

The Act brings a new era for the profession, particularly in standard setting and peer review. While it includes a number of AICPA-recommended reforms, the final legislation also incorporates elements that we questioned. Our position is clear, however: We will stand by its provisions and work to implement them. We will continue to restore the faith of investors who depend on CPAs for information critical to the success of America's capital markets. We remain steadfast in our commitment to strengthen the profession.

Make no mistake: increasing the public's faith, and the faith of our members, in the honorable credential of CPA is our highest priority. Together, we must all reach back to the core values that have earned us enormous respect: integrity, competence, and objectivity. As the vision statement that grew out of the grassroots efforts of CPAs across the nation asserts, CPAs are the trusted professionals who enable people and organizations to shape their future.

As we all move forward during these challenging times, the AICPA, as your national professional organization, is committed to supporting you, helping you navigate the new environment and assisting you in finding the opportunities these changes bring to CPAs. Toward this goal, this letter highlights several items: (1) a review of initiatives designed to increase public confidence in the audit and CPA profession, (2) an overview of resources to help members understand the Sarbanes-Oxley Act, and (3) a call for a revitalized accounting culture. Also attached is a summary of the new law including a list of provisions that will most affect CPAs.

One of the resources we have created to help members work through the Act is a toll-free hotline. Members who have questions about the law and how it will impact their firm or company should call 866-265-1977. More details, as well as a list of other resources, are included later in this letter.

The AICPA has walked a difficult road these past months, determined to do right by the public and the honorable men and women of the profession. Developing meaningful reforms that protect the public interest and restore confidence in the accounting profession has been a primary focus. Thousands of volunteer and staff hours have been committed to educating and testifying before Congress, working with the media, analyzing the issues and identifying new reforms. Now, as we enter a new era for the profession, the task ahead for all of us is unmistakable: we must reclaim accounting's heritage as the bedrock of business integrity.

Key Initiatives to Regain Public Confidence in the Audit

We now have an opportunity before us. All of us who are privileged to be CPAs have a responsibility to preserve the honor and integrity of the profession. But in advancing the interests of shareholders and restoring investor confidence, we also have a responsibility to move forward on many other fronts. While no single initiative will increase public trust or put an end to fraud and corporate malfeasance, the profession must be a leader in the rebuilding process.

On September 4, AICPA President and CEO Barry C. Melancon addressed financial leaders and the media at the Yale Club in New York City, where he spoke of the need for cultural change in the profession. He also unveiled a series of AICPA initiatives designed to strengthen investor confidence by enhancing the quality of audits. These initiatives underscore the profession's core values and represent opportunities where the profession can lead the way in reform.

Barry did an excellent job of representing the profession. So that you can have an opportunity to read his presentation, the speech will be available in its entirety at www.aicpa.org. The following also provides a summary, including the key roles of the profession and the AICPA as Barry defined them in his speech.

• Standard Setting. While the Public Company Accounting Oversight Board has broad responsibilities, CPAs have a public-interest responsibility to set standards for their own profession-just as professionals do in medicine, engineering and other fields. The AICPA is inviting greater involvement in the standard-setting process, particularly by users of financial statements. We also are working to develop quality controls that provide guidance regarding an auditor's potential dependency on fees from large clients. This guidance will consider such issues as expanded rotation requirements for key personnel and compensation policies.
   
• Fraud Detection and Prevention. Reducing the incidence of financial fraud will require a team effort among auditors, corporate management and financial professionals. The AICPA is inviting corporate America to join us in designing, by June 2003, antifraud programs and controls to be implemented by corporations and that CPAs can test and report on. To initiate this effort, the AICPA will sponsor before the end of the year a new antifraud summit for financial market executives and corporate America. The summit will identify new antifraud initiatives and ways to collaborate on implementing them.
   
• Research. The AICPA is establishing an Institute for Fraud Studies in collaboration with the University of Texas at Austin and the Association of Certified Fraud Examiners. This new organization will sponsor or conduct research in the areas of fraud prevention and detection. The goal is to deliver vital information to business and government on how to reduce the adverse impact of fraud and to help investors protect themselves.
   
• Education. To further establish a culture of ethical behavior, the AICPA is asking all its members to commit more time to fraud detection in their continuing education. We also are working with academic institutions, university accounting programs and college textbook publishers to incorporate information about fraud prevention and detection in the appropriate educational materials. Additionally, we are urging the stock exchanges to mandate antifraud training for all members of management, boards of directors and audit committees. In support of this endeavor, we will by the fall of 2003 offer-free of charge-training programs focusing on the roles and responsibilities of management and those in corporate governance.
   
• Financial Reporting. An improved reporting model must provide investors with timely disclosure of better quality information such as off-balance-sheet activity, liquidity, non-financial performance indicators and unreported intangibles. The AICPA will work with the Financial Accounting Standards Board to move toward this kind of financial reporting model. In addition, we are initiating a debate within the accounting community on how to differentiate between the needs of large-cap companies and small, closely held businesses and possibly to modify GAAP and/or GAAS to reflect this reality. We are also supporting the SEC's current proposal to expand and enhance the disclosure of estimates and accounting policies.
  

  Another initiative in the area of financial reporting deserves special attention. With the Canadian Institute of Chartered Accountants, the AICPA has developed the Value Measurement and Reporting Collaborative. The VRMC brings together stakeholders in the financial reporting process from around the world to determine the best methodologies for value measurements and reporting. The primary goal is to provide investors with more information about what makes a company successful.

• Corporate Governance and Internal Controls. Promoting strong corporate governance and internal controls is a high priority for the AICPA. We are asking the Auditing Standards Board to revise existing internal control and reporting standards. This will let the public know when the auditor communicates internal control weaknesses to the audit committee of a public company.

Resources on the Sarbanes-Oxley Act of 2002

These initiatives represent opportunities where the profession can take the lead in increasing public confidence in the capital markets. While the Sarbanes-Oxley Act brings a new regulatory environment for our profession, it also offers some unexpected opportunities. The potential to significantly raise the value of the audit and the prestige of the audit professional is very real. I hope never again to hear an audit described as a "commodity."

The Act affects the accounting profession in general, impacting dramatically not just the largest accounting firms, but any CPA actively working as an auditor of a publicly traded company or any CPA working in the financial management area of a public company. It creates the new five-member Public Company Accounting Oversight Board (PCAOB), which has the authority to set (or adopt) and enforce auditing, attestation, quality control, and ethics (including independence) standards for public companies. It is also empowered to inspect the auditing operations of public accounting firms that audit public companies as well as impose disciplinary and remedial sanctions for violations of the board's rules, securities laws and professional auditing standards.

A summary of the Act, as well as a list of areas of which CPAs need to be aware, is attached to this letter. As you read through the summary, I call your attention to the "cascade effect," and its potential implications for small businesses and accounting firms if the legislation is used as a template for other federal or state legislative or regulatory changes. The AICPA and state CPA societies are monitoring this concern, and will work hard to mitigate its effects on nonpublic companies and the CPAs who serve them.

Also to help you understand the ramifications of the Sarbanes-Oxley Act, the AICPA has developed several resources. A new toll-free number is available for any questions your firm or company may have about the legislation, how it will be implemented and how to comply. The hotline will be staffed Monday through Friday for the remainder of 2002. Call 866-265-1977 and select the option that is most appropriate for your firm or company. You will receive a response within twenty-four hours.

Firm leaders are encouraged to attend "The State of the ProfessionPreparing Today for Tomorrow," scheduled for November 11-13 in Phoenix, Arizona. This symposium, developed by the AICPA Management of an Accounting Practice Committee, will include a discussion of the reforms on Capitol Hill, perspectives from government and legislative leaders, and an interactive Town Hall meeting. The event highlight is an address by David M. Walker, Comptroller General of the United States.

Additional information and breaking news will be available in the electronic AICPA News Update, e-mail alerts and Webcasts. Review a detailed description of the Act online. The complete Act can be found at http://news.findlaw.com/hdocs/docs/gwbush/sarbanesoxley072302.pdf. For more information on state legislation and other issues, go to The Changing Regulatory Landscape.

These resources are intended to be an overview of the Act's provisions, and as you know, they can't be considered legal advice. It's important to remember that each CPA's circumstances are different, and therefore we urge you to consult with your legal counsel about specific provisions and how they may affect your practice or employment area.

A Revitalized Accounting Culture

The Sarbanes-Oxley Act of 2002 is certainly part of the solution. It ushers in a new era of corporate accountability and public participation in certain areas of the accounting profession. But it will take more than legislation to increase investor confidence in the capital markets and in the audit function. As CPAs, we need to reclaim our most priceless asset: our reputation. What is needed is a revitalized accounting culture.

For over a hundred years, our profession's culture has been shaped by a commitment to accuracy and a passion for getting it right. CPAs have shared a belief in the rules and a zeal for applying them. There has never been any tolerance for those who break the rules. That is the creed that has governed the AICPA and its members from the very beginning. And it is the creed we stand by today.

The revelations of financial abuse were a traumatic blow to anyone who holds the CPA credential. The vast majority of CPAs-from corporate employees to those who provide services to individuals and small businesses to auditors of publicly traded companies-serve the public interest each and every day. But that is no hiding place for those who have not. We cannot allow the actions of these CPAs to taint the 350,000 in this professional association who stand by our values and make hard, ethical decisions without hesitation.

This profession and its professional association cannot and will not tolerate any member who seeks to commit fraud. Nor will we tolerate any member who performs substandard work and veers away from the fundamental code of ethics and responsibilities that have defined our profession for over a hundred years.

During these challenging months, our Council and Board of Directors have been our unwavering guide. With representatives from every segment of the profession-seven from small firms; four from medium firms and two from large firms; four from business and industry; one each from government and education; and three public members-the Board continues to be your voice, sharing your views and concerns.

To help us continue to communicate with you on a timely basis, we are asking all of our members to provide us with their e-mail address. Call Member Satisfaction toll free at 888-777-7077/direct 201-938-3000 and be sure to ask if you have selected to receive our electronic communications.

As the national professional home for CPAs, we share your deep concern over this situation and its effect on our business communities and profession. Rest assured that the AICPA will continue to be on the frontlines, sharing the profession's core values and the unwavering ethical commitment for which CPAs have always been known. We are dedicated to increasing public confidence in the CPA as America's most trusted financial advisor and guardian of the public interest.

Yours sincerely,

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