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Bookkeeping Services Provided by Auditors To Audit Clients in Emergency or Other Unusual Situations

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Information about this document as published in the Federal Register.

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AGENCY:

Securities and Exchange Commission (“Commission”).

ACTION:

Interpretation.

SUMMARY:

This release expresses the view of the Commission that auditors of the financial statements of Commission registrants may provide certain bookkeeping services to those audit clients directly affected by the events of September 11, 2001.

EFFECTIVE DATE:

September 14, 2001.

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FOR FURTHER INFORMATION CONTACT:

John M. Morrissey, Deputy Chief Accountant or Samuel L. Burke, Associate Chief Accountant, Office of the Chief Accountant, at (202) 942-4400, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-1103.

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SUPPLEMENTARY INFORMATION:

I. Introduction and Summary

Accounting firms and registrants have asked the Commission whether accounting firms may assist audit clients that had offices in and around the World Trade Center by participating in the recovery process to facilitate a timely, effective and efficient revitalization of their audit clients' records and systems that were destroyed in the events of September 11, 2001, without impairing the auditor's independence from those clients. The Commission believes that accounting firms may perform such services without impairing their independence.

II. Discussion

In November 2000, the Commission substantially revised Rule 2-01 of Regulation S-X,[1] which addresses auditors' independence from their audit clients filing financial statements with the Commission.[2] As amended, Rule 2-01(c)(4)(i)(A) states that, among other things, maintaining or preparing an audit client's accounting records or preparing or originating source data underlying an audit client's financial Start Printed Page 48336statements will impair an auditor's independence from that client. Rule 2-01(c)(4)(i)(B)(1), however, permits such bookkeeping services “in emergency or other unusual situations, provided the accountant does not undertake any managerial actions or make any managerial decisions.”

The Commission believes that the events of September 11, 2001, clearly meet the definition of an unusual situation and an emergency situation for those companies that have been directly affected by the destruction of the World Trade Center and damage to surrounding buildings.

Accordingly, this event qualifies as an “emergency or other unusual situation” under Rule 2-01(c)(4)(i)(B)(1) of the bookkeeping rule and, provided that the accounting firm does not undertake managerial actions or decisions, an accounting firm's independence will not be deemed to be impaired where a firm is providing bookkeeping services to those entities directly affected by the destruction of the World Trade Center and damage to surrounding buildings. The Commission understands that in this unique situation an auditor may be best suited, because of its knowledge of its client's financial systems, to participate in the recovery process and facilitate a timely, effective and efficient revitalization of its clients' records and systems. Services under this exception may continue until the client's host or destroyed records are reconstructed and its financial systems are fully operational, and the client can effect an orderly and efficient transition to management or other service providers.

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List of Subjects in 17 CFR Part 211

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Amendments to the Code of Federal Regulations

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For the reasons set forth in the release, we are amending title 17, chapter II of the Code of Federal Regulations as follows:

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PART 211—INTERPRETATIONS RELATING TO FINANCIAL REPORTING MATTERS

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1. Part 211, subpart A, is amended by adding Release No. FR-57 and the release date of September 14, 2001 to the list of interpretive releases.

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Dated: September 14, 2001.

By the Commission.

Jonathan G. Katz,

Secretary.

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Footnotes

2.  [Release No. 33-7919; 34-43602, 35-27279; IC-24744; IA-1911; FR-56 (November 20, 2000).]

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[FR Doc. 01-23434 Filed 9-19-01; 8:45 am]

BILLING CODE 8010-01-M