Proposal Issued on Y2K Engagements

January 1999 Issue
Proposal Issued on Y2K Engagements
ASB Provides Advice on Regulators' Rules
By Anthony J. Mancuso, CPA
The Auditing Standards Board, acting on the recommendations of the AICPA's Securities Industry Year 2000 Agreed-Upon Procedures Task Force, recently issued Statement of Position 98-8, which provides guidance on Year 2000 agreed-upon procedures attestation engagements pursuant to rule 17a-5 of the Securities Exchange Act of 1934, rule 17Ad-18 of the Securities Exchange Act of 1934, and Advisories 17-98 and 42-98 of the Commodity Futures Trading Commission.
The SOP stresses that the engagements described are designed only to satisfy the regulatory requirements of stated SEC and CFTC rules, and that the procedures, as set forth in the reports illustrated in the SOP's appendixes, are neither appropriate nor intended for use in other engagements.
SEC Rule 17a-5 requires broker-dealers with minimum net capital requirements of $5,000 or greater to file with the SEC and the broker-dealer's designated examining authority (DEA) two separate reports regarding their Year 2000 readiness. Similarly, rule 17Ad-18 requires certain registered nonbank transfer agents to file with the SEC two separate reports regarding their Year 2000 readiness. The first report, which addresses the broker-dealer or transfer agent's Year 2000 readiness as of July 15, 1998, was to be filed with the SEC and DEA by August 31, 1998.
The required broker-dealers must file the second report, which addresses Year 2000 readiness as of March 15, 1999, with the SEC and DEA by April 30, 1999. Each report contains two parts, jointly referred to as Form BD-Y2K for broker-dealers and Form TA-Y2K for transfer agents. Part I, in a check-the-box style, must be filed by all entities subject to the reporting rules. Part II requires a narrative discussion of specified aspects of the broker-dealer or transfer agent's Year 2000 efforts. Part II applies only to broker-dealers with a minimum net capital requirement of $100,000 or greater as of March 15, 1999, and transfer agents that do not qualify for the exemption in paragraph (d) of rule 17Ad-13 under the Securities Exchange Act of 1934.
With respect to the second report due April 30, 1999, the SEC requires entities completing Part II to file a report prepared by an independent public accountant regarding the entity's process for addressing Year 2000 problems. SEC rules 17a-5 and 17Ad-18 state that only reports on engagements performed in accordance with standards issued by a national organization that is responsible for promulgating authoritative accounting and auditing standards will meet its regulatory requirements. The SEC has indicated that the procedures set forth in SOP 98-8 meet its regulatory requirements. Although the agreed-upon procedures report is restricted to the use of certain specified parties, it will be accessible by the public.
The CFTC issued Advisory 17-98 indicating that a Year 2000 problem, as defined in the advisory, constitutes a material inadequacy within the meaning of CFTC Regulation 1.16, thus triggering certain notification requirements applicable to CFTC registrants and their accountants. In Advisory 42-98, the CFTC advised its registrants and their accountants that the agreed-upon procedures attestation engagement as outlined in SOP 98-8 will satisfy the CFTC's requirements with respect to the accountant's responsibility for the identification of material inadequacies resulting from a Year 2000 problem.
As a result of the connection between Year 2000 problems and the identification and reporting of material inadequacies, as set forth in CFTC Advisory No. 17-98, the auditor of the financial statements of a CFTC-regulated entity should be the accountant engaged to perform the agreed-upon procedures attestation engagement pursuant to SOP 98-8. In performing the audit of the CFTC-regulated entity's financial statements, the CFTC does not require the auditor to perform procedures beyond the agreed-upon procedures set forth in SOP 98-8 in order to detect material inadequacies resulting from a Year 2000 problem.
The SOP was effective upon issuance (October 28, 1998) and applies only to agreed-upon procedures attestation engagements relating to the assertions regarding Year 2000 readiness in Part I and Part II of Form BD-Y2K, Part I and Part II of Form TA-Y2K, or a futures commission merchant or introducing broker's representation regarding the absence of material inadequacies relating to Year 2000 problems as such are defined in CFTC Advisory 17-98. *

Home | About Us | Continuing Education | Future CPAs | Government Affairs | Professional Resources | Publications | Sound Advice | Tax Resources
Chapters | Committees | Member Center | Events Calendar | Classifieds | Careers | E-zine Subscriptions | The Trusted Professional | The CPA Journal

Search | Site Map | Become a Member | Jobs | Press Room | Contact Us | Feedback