But this is the first time that we’ve appeared before you, and so I briefly would like to go over theindependence related matters that have occupied our time.
The board was established in 1997 and was authorized in very early 1998 by the issuance of an FRR from the SEC to create standards, principle-based standards, to determine the independence of auditors of public companies.
It’s four members of the profession and four lay people or non-accountants of some experience
We appointed a task force of the board, a task force of public citizens both from the academy and from the profession and from the investment community, and we have academic consultants.
That task force and the consultants have been producing working on a conceptual framework, which is a rather advanced state but still a work-in-progress.
And we, in addition to the conceptual framework, began before the conceptual framework was completed in an imperfect process but one we felt some anxiousness to begin to advance the ball on substantive standard creation, the first standard that we took up for studying involved corporate governance.
And our thought was to try and encourage in some way the involvement of audit committees in the maintenance and monitoring of the auditor company relationship, and we went through a long public process with public hearings and notice, et cetera, and adopted Independence Standards Board Standard No. 1 which requires conversations between theauditor and the audit committee of the board with respect to all relationships that a reasonable person might believe would bear upon the independence of auditors.
The second standard that we took up addressed the auditing of mutual funds and affiliated entities, and that was passed in December of 1999.
The third standard that we created was designed to modernize independence rules with respect to employment of former audit firm partners or employees with audit clients. The next matter that we have has not been adopted as a standard yet.
It’s at the ED exposure draft stage, and it’s ready to roll, but we have suspended consideration of it while the Commission considers the present matter before it. But that is the project on financial interest on audit firm personnel, question of ownership of stock, et cetera, and a related project on family relations — can my son-in-law work for the audit company client?
And I think we have reached an agreement about that, but it’s not — I’m not sure all members of the board
We have other projects that are at a similar state of advancement, one on valuations and appraisal services, and finally, we have a project on future firm structures, which is a complex matter that’s also dealt with to some extent in your proposed rule-making.
Many of these have been reflected in your rule-making but in ways that are, in some respects, a bitdifferent. In all, the Independence Standards Board I think has worked well.
It’s an unusual structure. We have not had an occasion of a split vote. We have worked, as I say, well together, and my colleagues can share their insights on that topic.
And we have also — I don’t think it’s breaching any trust — to say informally we have discussed whether or not it would be desirable to increase the public membership of the board to a majority.
I don’t think it would be change the outcome of our deliberations, but I recommended that we consider doing that on the notion that it might help the perception of the world, thinking that perhaps we were compromising to get standards done.