KPMG LLP
July 14, 2004
Office of the Comptroller of the Currency
Office of Thrift Supervision
Board of Governors of the Federal Reserve System
Federal Deposit Insurance Corporation
Securities and Exchange Commission
c/o Mr. Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549-0609
Ladies and Gentlemen:
RE: OCC: Docket No. 04-12
OTS: No. 2004-27
Board: Docket No. OP-1189
FDIC: Comments/OES
SEC: File No. S7-22-04
KPMG LLP is pleased
to provide our comments on the interagency statement entitled,
Policy
Statement: Interagency Statement on Sound Practices
Concerning Complex Structured Finance Activities (Policy Statement),
issued jointly by the Office of the Comptroller of the Currency (OCC),
Office of Thrift Supervision (OTS), Board of Governors of the Federal
Reserve System (Board), Federal Deposit Insurance Corporation (FDIC),
and the Securities and Exchange Commission (SEC) (collectively, the “Agencies”).
KPMG supports the Agencies’ proposal to require that financial
institutions offering complex structured finance transactions maintain
internal controls and risk management procedures designed to identify
and address the financial, reputational, legal, and other risks associated
with such transactions.
The Policy Statement
includes, among other recommendations, the following guidance related
to
financial institutions’ procedures
for reviewing the accounting and disclosure by customers for complex
structured finance transactions:
The financial
institution’s
policies also should address when third party accounting professionals
should be engaged to review
transactions. Moreover, there may be
circumstances where the financial institution or the third-party
accounting professionals it engages will wish to communicate directly
with the customer’s independent auditors to discuss the transaction.
Independent monitoring of the approval process (discussed below)
should ensure that personnel adhere to established requirements for
obtaining a review by third party accountants or communicating with
the customer’s independent auditor.
The above guidance
undoubtedly will lead financial institutions offering complex structured
finance
transactions to request that
public accounting firms report on the application of accounting principles
by potential parties to such transactions pursuant to Statements
on Auditing Standards No. 50, Reports on the Application of Accounting
Principles and No. 97, Amendment to Statement on Auditing Standards
No. 50, Reports on the Application of Accounting Principles (so-called “SAS
50 letters”). Ordinarily, SAS 50 letters are issued to the
party for whom the specific accounting guidance is relevant. We do
not believe that SAS 50, as amended by SAS 97, contemplates the issuance
of reports on the application of accounting principles to financial
intermediaries. SAS 50, as amended, specifically prohibits accountants
from rendering a written report on the application of accounting
principles to a hypothetical transaction (i.e. not involving facts
and circumstances of a specific entity).
As a practical
matter, we have adopted internal policies that prohibit the issuance
of
SAS 50 letters to financial intermediaries. KPMG
will consider issuance of a SAS 50 letter to an entity only when
(1) that entity is a principal party to the transaction being reported
upon and (2) the letter addresses only the entity’s own accounting
for the transaction. Moreover, the issuance of such SAS 50 letters
is governed by specific Firm policies and approval requirements.
We do not anticipate any changes to KPMG’s policies as a result
of the Policy Statement.
The Policy Statement
implies that the financial institution should, under certain circumstances,
employ third party accounting professionals
to review transactions contemplated by potential customers. We believe
that the guidance should be amended to recommend that the financial
institution’s procedures include verification that its customers
have engaged accounting professionals, where necessary and/or appropriate,
to evaluate the appropriate accounting and disclosure for the subject
transaction. The financial institution’s procedures also should
ensure that, as an integral part of that process, the customer’s
external auditors have been consulted on a timely basis regarding
the accounting and disclosure proposed for the subject transaction.
We would be pleased to discuss our comments with you at any time.
Please call Craig W. Crawford at (212) 909-5536 if you have any
questions.
Very truly yours,
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