SEC Grades Year 2000 Compliance Efforts
T he Securities and Exchange Commission issued a report on the readiness of the securities industry, including the SEC, for year 2000 information technology challenges. Most computer hardware, such as mainframes and personal computers, use a two-digit internal clock that will not roll over to the year 2000. The report, Readiness of the United States Securities Industry and Public Companies to Meet the Information Processing Challenges of the Year 2000, presents the positions of a special task force of the SEC staff.
According to the report, the majority of members of the securities industry were involved in assessing year 2000 compliance or already taking steps to remedy the problem. However, the report said few companies were completely prepared and a few had only recently become aware of the problem. Most of the SEC staff agreed the remediation efforts were moving along quickly enough.
At a press conference following the reports release, Congressman John D. Dingell (D-Mich.), who had requested the SEC issue such a report, said that while there appeared to be a high level of awareness and activity, the lack of progress in many areas was troubling. He said it is unclear whether this is due to lack of management attention, the high costs of conversion or competition for the pool of the best-qualified systems experts.
The report warned that the problem was too complex for companies to guarantee to have achieved complete year 2000 compliance. According to the report, efforts to solve year 2000 problems are best described as "risk management." Nonetheless, Dingell urged companies to set up contingency plans.
AICPA Year 2000 Initiaitves
According to Alan W. Anderson, AICPA senior vice-presidenttechnical services, the accounting profession has assembled its own task force to develop a tool kit of comprehensive questionnaires, checklists and other material to provide accounting and auditing guidance on the year 2000 issue. The task force also will provide guidance to CPAs in business and industry as to how they can diagnose the extent of a year 2000 problem in their own companies.
The Journal of Accountancy will publish in an upcoming issue an article that describes the year 2000 problem and lists the major accounting software applications and tells whether or not they are compliant. The article also will show how some companies have solved the problem and the hurdles CPAs face, such as liability exposure, in making systems year 2000 compliant.
Standards and disclosure
The task force considered the connection of the year 2000 problem and the auditing, independence and accounting standards of public companies. After consulting with members of the accounting profession, including the American Institute of CPAs (see box below), the task force concluded that current standards alert management, investors and other users of financial information to the problems seriousness. The task force also found that current standards, as written, should initiate action to remedy the situation if it has not already begun.
The SEC divisions of corporation finance and investment management examined the necessity of preparing new rules to ensure adequate corporate disclosure on year 2000 activities, expenditures and the risk of adverse consequences of failure to complete necessary remediation. The divisions concluded that current laws and regulations were sufficient to cover public companies reporting obligations for operations and costs as they pertained to year 2000 problems.
As for the securities organizations, such as the exchanges and clearing organizations, the task force found that most were making adequate progress toward preparing their computer systems for the year 2000. The SEC plans to conduct ongoing surveys of all clearing organizations to ensure they remain on schedule. The SEC staff also said it would ensure broker-dealers, transfer agents and investment advisers and companies were aware of the problem. The vast majority of registrants in all three groups reported they were either taking or planning corrective action.
Of the SECs own internal systems, only 26% could be considered year 2000 compliant. Of the 53 most critical internal systems, 38 still required remediation and 1 needed to be replaced or rewritten. The report said that the Electronic Data Gathering, Analysis and Retrieval (EDGAR) system was among the SEC systems currently compliant. Much of the remediation work on SEC internal systems is expected to be completed by third-party vendors by December 1998.
According to the report, the SEC will continue to examine and inspect programs to ensure that securities markets participants continue to address the year 2000 problem. The report can be accessed on the SEC Web site at http://www.sec.gov .
Adams Chosen for SEC Deputy Accountant Post
S ecurities and Exchange Commission Chief Accountant Michael H. Sutton announced the appointment of Jane B. Adams as deputy chief accountant. Adams, who previously served as the director of accounting standards at the American Institute of CPAs, will be responsible for the day-to-day operations of the office, including the resolution of accounting and auditing practice issues, rulemaking and private-sector standard setting.
While she was employed by the AICPA, Adams oversaw the staffing and support for the AICPA accounting standard-setting area, including the accounting standards executive committee. She also served as the technical adviser to the U.S. delegation to the International Accounting Standards Committee. Before joining the Institute staff, Adams was a project manager at the Financial Accounting Standards Board, where she worked on the FASBs derivatives and hedging transactions project.
Registration for ERISA Practitioners
L ast month, the Journal discussed changes in investment adviser registration (see "SEC, States Divide Adviser Registration," ). Congress is now addressing a potentially crippling result of this legislation: Before the new regulations dividing registration among states and the Securities and Exchange Commission, investment advisers who were working with plans under the Employee Retirement Income Security Act had to be registered with the SEC. Now, under the new laws, many of these smaller ERISA advisers will be forced to register with individual statesand banned from doing so with the SECand thus will lose their ERISA practices. A current sunset provision allows these practitioners to continue only until October 1998.
SEC Chairman Arthur Levitt wrote a letter to Congressman William F. Goodling (R-Pa.), chairman of the Committee on Education and the Work Force, pointing out this problem. Congressman Harris W. Fawell (R-Ill.) followed with a speech in Congress agreeing with Levitt. He has introduced HR 2226 to correct the problem by allowing state-registered investment advisers to continue to work with ERISA plans. The American Institute of CPAs Washington staff said opposition to the bill is unlikely and quick passage probable.