ICI Supports Proposed Audit Committee Standards, February 2003

Washington, DC, February 20, 2003 - The Institute supports efforts to ensure the accuracy and reliability of financial reports by enhancing the oversight of the financial reporting process, including a rule recently proposed by the SEC that directs the national exchanges to prohibit the listing of any security of an issuer whose audit committee does not meet certain requirements relating to:

the independence of audit committee members;
the audit committee's responsibility to select and oversee the issuer's independent accountant;
the procedures for handling complaints regarding the issuer's accounting practices;
the authority of the audit committee to engage advisers; and
the funding for the independent auditor and any other advisers engaged by the audit committee.

In a recent letter to the SEC, the Institute comments on proposed Rule 10A-3 and its unique application to investment companies.

The Institute supports the use of the Investment Company Act's definition of interested person to determine whether a member of an investment company's audit committee is independent. The Institute requests that the SEC add an exemption to the proposed rule that would permit a director on an investment company's audit committee to provide legal services to an investment company's independent directors; and/or be a partner of a law firm that provides legal services to an investment company's independent directors.

The Institute also supports provisions of the proposed rule that exempt investment company audit committees from selecting the independent accountant. The Institute recommends that the SEC clarify that "selection" includes both appointment and retention. The proposed rule also requires that the audit committee have the authority to engage independent counsel and other advisers as it deems necessary to carry out its duties.

The Institute supports the SEC's decision to refrain from prescribing specific procedures for handling complaints about accounting practices. Under the SEC's approach, each audit committee will establish its own set of procedures for receiving, retaining, and treating complaints received by the fund regarding accounting, internal accounting controls, and auditing matters; and for the confidential, anonymous submission by employees of the fund of concerns regarding questionable accounting or auditing matters.

Finally, the Institute supports the delayed implementation of the proposed rule, which will provide issuers time to elect any new directors necessary to meet the new audit committee requirements.