Proposed Amendment to Regulation S-X. Rule 2-02. Accountants' Reports

J. Grundfest
Stanford Law School
January 29, 2002

Discussion Draft

Proposed new language appears in italics and language to be deleted is struck through.

Rule 2-02. Accountants' Reports.

(a) Technical Requirements. The accountant's report: (1) shall be dated; (2) shall be signed manually; (3) shall indicate the city and state where issued; and (4) shall identify without detailed enumeration the financial statements covered by the report.

(b) Representations as to the Audit. The accountant's report: (1) shall state whether the audit was made in accordance with generally accepted auditing standards; and (2) shall designate any auditing procedures deemed necessary by the accountant under the circumstances of the particular case, which have been omitted, and the reason for the omissions; and (3) shall describe any and all accounting practices, treatments, or decisions that, if disclosed, would have a material effect on the valuation of the reporting issuer's publicly traded securities, together with such information as may reasonably be necessary in order to inform purchasers or sellers of the valuation implications of any such practices, treatments, or decisions. Nothing in this rule shall be construed to imply authority for the omission of any procedure which independent accountants would ordinarily employ in the course of an audit made for the purpose of expressing the opinions required by paragraph (c) of this section.

(c) Opinion to be Expressed. The accountant's report shall state clearly: (1) the opinion of the accountant in respect of the financial statements covered by the report and the accounting principles and practices reflected therein; and (2) the opinion of the accountant as to the consistency of the application of the accounting principles, or as to any changes in such principles which have a material effect on the financial statements given.

(d) Exceptions. Any matters to which the accountant takes exception shall be clearly identified, the exception thereto specifically and clearly stated, and, to the extent practicable, the effect of each such exception on the related financial statements given.

(e) Limitations on Liability. No violation of Section 2-02(b)(3) of this Regulation S-X shall be deemed to give rise to any express or implied private right of action under any of the federal securities laws.