Federal Register / Vol. 63, No. 117 /Thursday, June 18, 1998 / Proposed Rules 33305

1 17 CFR 201.102(e).

2The Rule addresses the conduct of attorneys,

accountants, engineers and other professionals or

experts who appear or practice before the

Commission. 17 CFR 201.102(e)(2) and (f)(2).

3 17 CFR 201.102(e)(1)(i), (ii) and (iii).

4Checkosky v. SEC, 139 F.3d 221 (D.C. Cir. 1998)

(‘‘Checkosky II’’).

5This clarification addresses the conduct of

accountants only, and is not meant to address the

conduct of lawyers or other professionals who

practice before the Commission.

6Touche Ross & Co. v. SEC, 609 F.2d 570, 582

(2d Cir. 1979). The AICPA also recognizes that

accountants must discharge their duties with

competence. See, e.g., AICPA Professional

Standards, Vol. 2, ET sec. 56 (1997).

7Rule 102(e) was promulgated under the

Commission’s broad authority to adopt those rules

and regulations necessary for carrying out the

agency’s designated functions and its inherent

authority to protect the integrity of the agency’s

processes. Three U.S. Courts of Appeals have

upheld the validity of Rule 102(e). See Touche

Ross; Sheldon v. SEC, 45 F.3d 1515, 1518 (11th Cir.

1995); Davy v. SEC, 792 F.2d 1418, 1421 (9th Cir.

1986). The Checkosky opinions held that the

Commission had not clearly articulated the

‘‘improper professional conduct’’ standard or the

rationale for that standard. Also, the Checkosky

opinions did not decide the issue of the scope of

the Commission’s authority.

8Touche Ross, 609 F.2d at 579.

9See 17 CFR 201.102(f)(1) and (2). The

Commission has interpreted ‘‘practice’’ before the

Commission to include accountants functioning in

many roles, including those who serve as officers

of public companies. See, e.g., In re Terrano,

Securities Exchange Act of 1934 (‘‘Exchange Act’’)

Rel. No. 39485 (Dec. 23, 1997), 66 SEC Docket 494

(Jan. 20, 1998); In re Hersh, Exchange Act Rel. No.

39089 (Sept. 18, 1997), 65 SEC Docket 1170 (Oct.

14, 1997); In re Bryan, Exchange Act Rel. No. 39077

(Sept. 15, 1997), 65 SEC Docket 1129 (Oct. 14,

1997).

10U.S. v. Arthur Young & Co., 465 U.S. 805, 810

(1984).

11See, e.g., Securities Act of 1933 (‘‘Securities

Act’’) Schedule A (25)—(27), 15 U.S.C. 77aa(25)—

(27); Exchange Act 12(b)(1)(J)—(L), 15 U.S.C.

78l(b)(1)(J)—(L).

12Regulation S-X, 17 CFR 210.1–02(d) (1997).

13See Regulation S-X, 17 CFR 210.2–02 (1985).

14 Id.

SECURITIES AND EXCHANGE

COMMISSION

17 CFR Part 201

[Release Nos. 33–7546; 34–40089; 35–

26884; 39–2364; IA–1726; IC–23250; File No.

S7–16–98]

RIN 3235–AH47

Proposed Amendment to Rule 102(e)

of the Commission’s Rules of Practice

AGENCY: Securities and Exchange

Commission.

ACTION: Proposed rule.

SUMMARY: The Securities and Exchange

Commission (‘‘Commission’’) is

proposing an amendment to Rule 102(e)

of the Commission’s Rules of Practice.

Under Rule 102(e), the Commission can

censure, suspend or bar persons who

appear or practice before it. The

proposed amendment clarifies the

Commission’s standard for determining

when accountants engage in ‘‘improper

professional conduct’’ under Rule

102(e)(1)(ii).

DATES: Comments must be received on

or before July 20, 1998.

ADDRESSES: Submit comments in

triplicate to Jonathan G. Katz, Secretary,

Securities and Exchange Commission,

450 5th Street, NW., Washington, DC.

20549–6009. Comments can be

submitted electronically at the following

E-mail address: rule-comments@sec.gov.

All comment letters should refer to File

No. S7–16–98; include this file number

on the subject line if E-mail is used. All

comments received will be available for

public inspection and copying in the

Commission’s Public Reference Room,

450 5th Street, NW., Washington, DC.

20549–6009. Electronically-submitted

comment letters will be posted on the

Commission’s Internet Web site (http://

www.sec.gov).

FOR FURTHER INFORMATION CONTACT:

Michael J. Kigin, Associate Chief

Accountant, Office of the Chief

Accountant, at (202) 942–4400; or David

R. Fredrickson, Assistant General

Counsel, Office of the General Counsel,

at (202) 942–0890.

SUPPLEMENTARY INFORMATION: The

Securities and Exchange Commission

today is proposing for comment an

amendment to Rule 102(e). 1

I. The Purpose of this Release

The purpose of this release is to

solicit comments on a proposed

amendment to Rule 102(e) of the

Commission’s Rules of Practice. Under

Rule 102(e), the Commission can

censure, suspend or bar professionals

who appear or practice before it. 2

Specifically, pursuant to the Rule, the

Commission can impose a sanction

upon a professional whom it finds, after

notice and an opportunity for hearing:

(i) Not to possess the requisite

qualifications to represent others; or

(ii) To be lacking in character or

integrity or to have engaged in unethical

or improper professional conduct; or

(iii) To have willfully violated, or

willfully aided and abetted the violation

of, any provision of the Federal

securities laws or the rules and

regulations thereunder. 3

In a recent opinion addressing the

conduct of two accountants, the U.S.

Court of Appeals for the District of

Columbia Circuit found that the

Commission had not articulated clearly

the ‘‘improper professional conduct’’

element of the Rule. 4 To address the

court’s concerns, the Commission is

proposing an amendment to the text of

Rule 102(e) that clarifies the

Commission’s standard for determining

when accountants engage in ‘‘improper

professional conduct.’’ 5

II. A Brief Overview of Rule 102(e)

A. The Importance of Rule 102(e)

The Commission adopted Rule 102(e)

as a ‘‘means to ensure that those

professionals, on whom the Commission

relies heavily in the performance of its

statutory duties, perform their tasks

diligently and with a reasonable degree

of competence.’’ 6 Courts have

recognized that it is appropriate for the

Commission to use a disciplinary

mechanism such as Rule 102(e) to

encourage professionals to adhere to

ethical standards and minimum

standards of competence. 7 In adopting

the Rule, the Commission did not

intend to add an ‘‘additional weapon’’

to its ‘‘enforcement arsenal’’ 8 but to

protect its system of securities

regulation and, by extension, the

interests of the investing public.

B. The Important Role of Accountants

Accountants play many roles in the

Commission’s system of securities

regulation. In recognition of the

significance of auditors and audited

financial statements in the

Commission’s disclosure process, this

release focuses particular attention upon

the role of auditors in the securities

registration and reporting processes

under the federal securities laws. The

proposed amendment, however, covers

all accountants who appear or practice

before the Commission. 9

‘‘Corporate financial statements are

one of the primary sources of

information available to guide the

decisions of the investing public.’’ 10

Various provisions of the federal

securities laws require publicly held

companies to file audited financial

statements with the Commission. 11

These financial statements must be

audited by independent accountants in

accordance with generally accepted

auditing standards (‘‘GAAS’’). 12 The

auditor plans and performs the audit to

obtain reasonable assurance that the

financial statements are free from

material misstatement. Commission

regulations require the auditor to issue

a report containing an opinion on the

financial statements. 13 The auditor’s

opinion states whether the financial

statements present fairly, in all material

respects, the financial position of the

company as of a specific date. 14 The

opinion also states whether the results

of the company’s operations and cash
33306 Federal Register / Vol. 63, No. 117 /Thursday, June 18, 1998 / Proposed Rules

15 Id.

16See Touche Ross, 609 F.2d at 580–81.

17 In re Carter, Exchange Act Rel. No. 17595 (Feb.

28, 1981), 22 SEC Docket 292, 298 (Mar. 17, 1981).

Cf. Arthur Young, 465 U.S. at 817–18.

18See Carter, 22 SEC Docket at 298.

19 ’’In our complex society, the accountant’s

certificate * * * can be instruments for inflicting

pecuniary loss more potent than the chisel or the

crowbar.’’ U.S. v. Benjamin, 328 F.2d 854, 863 (2d

Cir.), cert. denied, 377 U.S. 953 (1964).

20Carter, 22 SEC Docket at 297. Because Rule

102(e)(1)(ii) is remedial and not punitive in nature,

the conduct must be evaluated to determine

whether the accountant poses a future threat to the

Commission’s processes.

21As Commissioner Johnson has noted:

A professional often must make difficult

decisions, navigating through complex statutory

and regulatory requirements, and in the case of

accountants, complying with (GAAS) and applying

(GAAP). These determinations require the

application of independent professional judgment

and sometimes involve matters of first impression.

Exchange Act Rel. No. 38183 (Jan. 21, 1997), 63

SEC Docket 1948, 1976 (Feb. 18, 1997) (Johnson,

Comm’r, dissenting), rev’d Checkosky II.

22 ’’Applicable professional standards’’ includes

such things as generally accepted accounting

principles, generally accepted auditing standards,

generally accepted attestation standards, the AICPA

Code of Professional Conduct, the AICPA

Statements on Standards for Consulting Services,

the AICPA Statements on Standards for Accounting

and Review Services, pronouncements of the

Independence Standards Board, and certain of the

Commission’s rules and regulations.

23See, e.g., In re Finkel, Securities Act Rel. No.

7401 (Mar. 12, 1997), 64 SEC Docket 103 (Apr. 8,

1997); In re Basson, Exchange Act Rel. No. 35840

(June 13, 1995), 59 SEC Docket 1650 (July 11, 1995);

In re F.G. Masquelette & Co, Accounting Series Rel.

No. 68, [1937–1982 Transfer Binder] Fed. Sec. L.

Rep. (CCH), ¶ 72,087 (June 30, 1982); In re Weiner,

Exchange Act Rel. No. 14249 (Dec. 12, 1997), 13

SEC Docket 1113 (Dec. 27, 1977).

24See generally SEC v. Blavin, 760 F.2d 706, 711

(6th Cir. 1985); Mansbach v. Prescott, Ball &

Turben, 598 F.2d 1017, 1023–24 (6th Cir. 1979).

25 In other instances, the federal securities laws

expressly subject auditors to liability without

requiring intentional misconduct. For example, the

Supreme Court has recognized that Section 11

allows recovery for ‘‘negligent conduct.’’ Herman &

MacLean v. Huddleston, 459 U.S. 375, 384 (1983),

referring to Ernst & Ernst v. Hochfelder, 425 U.S.

185, 210 (1976).

26 In re Checkosky, Exchange Act Rel. No. 31094

(Aug. 26, 1992), 52 SEC Docket 1389, 1410 (Sept.

15, 1992), rev’d Checkosky v. SEC, 23 F.3d 452 (D.C.

Cir. 1994) (‘‘Checkosky I’’), citing In re

Schulzetenberg, Admin. Proc. 3–6881, slip op. at 2

(Order Denying Motion to Dismiss Nov. 10,

1987)(unpublished opinion).

27 In re Gotthilf, Exchange Act Rel. No. 33949

(April 21, 1994), 56 SEC Docket 1543 (May 10,

1944).

flows for the year (or other period) then

ended, are in conformity with generally

accepted accounting principles

(‘‘GAAP’’), and whether the audit was

conducted in accordance with GAAS. 15

Investors have come to rely on the

accuracy of the financial statements of

public companies when making

investment decisions. Because the

Commission has limited resources, it

cannot closely scrutinize each of these

financial statements. 16 Consequently,

the Commission must rely on the

integrity of the auditors who certify, and

accountants who prepare, financial

statements. In short, both the

Commission and the investing public

rely heavily on accountants to assure

corporate compliance with federal

securities law requirements and

disclosure of accurate and reliable

financial information.

The Commission and the courts have

long acknowledged ‘‘the duty of

accountants to those who justifiably rely

on [their] reports.’’ 17 Accountants who

issue audit and other reports speak to

investors, publicly representing that the

accounting and auditing standards of

the accounting profession have been

followed. 18 An incompetent or

unethical accountant can damage the

Commission’s processes and erode

investor confidence in our markets. 19

III. The Standard Applied to

Accountants

A. ‘‘Improper Professional Conduct’’ In

General

The Court of Appeals in Checkosky II

criticized the Commission for not

clearly articulating when an accountant

would be deemed to have engaged in

‘‘improper professional conduct’’ under

Rule 102(e)(1)(ii). This proposed

amendment clarifies that whether an

accountant engages in ‘‘improper

professional conduct’’ is determined

first by evaluating whether the

accountant violated applicable

professional standards. It also specifies

the mental state required before an

accountant may be sanctioned under the

Rule. The proposed amendment covers

conduct that the Commission

historically has treated as ‘‘improper

professional conduct’’ under Rule

102(e)(1)(ii).

Rule 102(e)(1)(ii) has been an effective

disciplinary and remedial tool because

it has been used to address a range of

misconduct that poses a future threat to

the Commission’s processes. 20

Accountants who engage in intentional

or knowing misconduct, which includes

reckless misconduct, clearly pose this

type of future threat. Accountants who

engage in negligent misconduct also can

pose as great a threat to the

Commission’s system of securities

regulation as accountants who

knowingly violate the professional

standards.

Rule 102(e)(1)(ii) is not meant,

however, to encompass every

professional misstep. 21 A harmless

judgment error or immaterial mistake

does not pose a future threat to the

Commission’s processes and does not

constitute ‘‘improper professional

conduct.’’ Similarly, the Commission

does not seek to use the Rule to

establish new standards for the

accounting profession.

B. The Proposed Standard

The Rule addresses conduct that fails

to meet professional standards. The

proposed amendment delineates

categories of conduct that constitute

‘‘improper professional conduct’’ under

Rule 102(e)(1)(ii). These categories are:

(A) An intentional or knowing

violation, including a reckless violation,

of applicable professional standards; 22

or

(B) Negligent conduct in the following

circumstances:

(1) An unreasonable violation of

applicable professional standards that

presents a substantial risk, which is

either known or should have been

known, of making a document prepared

pursuant to the federal securities laws

materially misleading; or

(2) Repeated, unreasonable violations

of applicable professional standards that

demonstrate that the accountant lacks

competence.

1. Intentional or Knowing Violations,

Including Reckless Violations

Subparagraph (A) of the amendment

defines ‘‘improper professional

conduct’’ to include the most blatant

violations of the professional standards.

The Commission consistently has used

Rule 102(e)(1)(ii) proceedings to address

these types of violations of the

professional standards. 23

Clearly, an accountant who

intentionally or knowingly, including

recklessly 24, violates the professional

standards has engaged in ‘‘improper

professional conduct.’’ Accountants

who engage in this type of misconduct

undoubtedly pose the type of future

threat to the Commission’s system of

regulation that requires Commission

action.

2. Specific, Negligent Conduct

The proposed amendment also covers

specific, negligent violations of the

professional standards.25 The

Commission has recognized that ‘‘an

incompetent or negligent auditor can do

just as much harm to public investors

and others who rely on him as one who

acts with an improper motive.’’ 26 For

this reason, the Commission has stated

that negligent conduct can trigger a Rule

102(e)(1)(ii) proceeding, and has

brought Rule 102(e)(1)(ii) proceedings

based on negligent conduct.27

The Court of Appeals in Checkosky II

faulted the Commission for not

articulating with some degree of
Federal Register / Vol. 63, No. 117 /Thursday, June 18, 1998 / Proposed Rules 33307

28Checkosky II, 139 F.3d at 224.

29Material, as used in this context, means a

substantial likelihood of being considered

significant by a reasonable investor. Basic, Inc. v.

Levinson, 485 U.S. 224, 231–32 (1988), citing TSC

Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449

(1976).

30Cf. AICPA Professional Standards, Vol. 1 AU

sec. 312 (1997).

31See In re Curtin, Exchange Act Rel. No. 32519

(June 28, 1993), 54 SEC Docket 1137 (July 20, 1993).

32See also In re Valade, Exchange Act Rel. No.

4002 (May 19, 1998), 1998 SEC LEXIS 966; In re

Smith, Exchange Act Rel. No. 37738 (Sept. 27,

1996), 62 SEC Docket 2840 (Oct. 29, 1996); In re

Denton, Exchange Act Rel. No. 35381 (Feb. 15,

1995), 58 SEC Docket 2294 (Mar. 14, 1995); In re

Lamirato, Exchange Act Rel. No. 33660 (Feb. 23,

1994), 56 SEC Docket 345 (Mar. 15, 1994).

33See, e.g., In re Childers, Exchange Act Rel. No.

32505 (June 24, 1993), 54 SEC Docket 1017 (July 13,

1993).

34See, e.g., In re Withers, Exchange Act Release

No. 34537 (Aug. 17, 1994), 57 SEC Docket 1101

(Sept. 13, 1994).

35See In re Haskins & Sells, Accounting Series

Rel. No. 73 (Oct. 30, 1952), [1937–1982 Transfer

Binder] Fed. Sec. L. Rep. (CCH) ¶ 72,092 (June 30,

1982). Similarly, an auditor who is deceived by the

client and commits an audit error in reliance upon

the deception does not have an automatic defense.

See generally In re Hope, Accounting and Auditing

Enforcement Rel. No. 109A (Aug. 6, 1986), 36 SEC

Docket 663, 750–55 (Sept. 10, 1986). See also In re

Ernst & Ernst, Accounting Series Rel. No. 248 (May

31, 1978), 14 SEC Docket 1276, 1301 and n.71 (June

13, 1978).

36Rulemaking Petition by the AICPA Concerning

Rule 102(e) (‘‘AICPA Rulemaking Petition’’), SEC

File No. 4–410 (May 7, 1998).

37Under the AICPA Rulemaking Petition, before

an accountant can be found to have engaged in

‘‘improper professional conduct,’’ the accountant

also must pose a current threat to the integrity of

the Commission’s processes or to the financial

reporting system. See also Task Force on Rule

102(e) Proceedings, American Bar Association,

Report of the Task Force on Rule 102(e)

Proceedings: Rule 102(e) Sanctions Against

Accountants, 52 Bus. Law. 965, 985 (May 1997).

specificity when negligent conduct by

an accountant constitutes ‘‘improper

professional conduct.’’ 28 The proposed

amendment provides this specificity.

Specifically, subparagraph (B) of the

amendment defines ‘‘improper

professional conduct’’ to include: (1) An

unreasonable violation of the applicable

professional standards that presents a

substantial risk, which is either known

or should have been known, of making

a document prepared pursuant to the

federal securities laws materially 29

misleading; or (2) repeated,

unreasonable violations of the

applicable professional standards that

demonstrate that the accountant lacks

competence.

Under this standard, a single violation

of the professional standards could

constitute ‘‘improper professional

conduct’’ if the violation presents a

substantial risk, which is either known

or should have been known, of making

a document prepared pursuant to the

federal securities laws materially

misleading. Under these circumstances,

the single violation most likely would

be related to a transaction or event as to

which any reasonable auditor would

give heightened scrutiny.30 The integrity

of the Commission’s processes is

threatened by an accountant who fails to

exercise due professional care with

respect to the critical areas of his or her

professional responsibilities.

For example, an auditor who failed to

verify properly the amount of cash

purportedly held in a vault at a branch

of a bank, where that amount

constituted 61% of the branch’s and

45% of the bank’s total cash on hand,

engaged in improper professional

conduct under Rule 102(e)(1)(ii).31 In

this particular matter, at least $400,000

of the $2.7 million cash purportedly on

hand had been misappropriated by a

bank employee. Although the sum of

money misappropriated may not have

been quantitatively material to the

bank’s balance sheet, a Rule 102(e)(1)(ii)

proceeding was appropriate. Because a

shortage of the total amount of cash

actually on hand would impact

materially on the bank’s pre-tax

earnings, the auditor’s failure to verify

properly the cash on hand could be

considered negligent under

subparagraph (B)(1) of the proposed

amendment since it presented a

substantial risk, which should have

been known, of making a document

prepared pursuant to the federal

securities laws materially misleading.32

Proposed subparagraph (B)(2) of the

amendment would define improper

professional conduct to include

repeated, unreasonable violations of

applicable professional standards that

demonstrate that the accountant lacks

competence. Repeated, unreasonable

violations of the professional standards

by an accountant can damage both the

Commission’s processes and investor

confidence in the integrity of financial

statements. This level of incompetence

calls into question the reliability of any

work performed by the accountant.

Further, an accountant who engages in

this type of misconduct may well

benefit from remedial measures before

resuming practice before the

Commission. Repeated violations would

include two or more violations that

could occur within one audit 33 or in

several audits.34 Repeated violations

also could include a course or pattern of

violations regardless of whether the

types of violations are similar.

C. The ‘‘Good Faith’’ Defense

With respect to defenses to a Rule

102(e)(1)(ii) proceeding, the

Commission has never considered the

subjective good faith of an accountant to

be an absolute defense.35 Good faith

actions of an accountant are more

appropriately considered when

determining what sanction would be

appropriate. For instance, an accountant

who acts in good faith, but is unable to

conform to the minimum standards of

the profession, may benefit from

additional training, peer review,

supervision and other appropriate

remedial action undertaken while

suspended from practicing before the

Commission or as a condition of future

practice before the Commission.

D. The AICPA Rulemaking Petition

The American Institute of Certified

Public Accountants (‘‘AICPA’’)

submitted a rulemaking petition to the

Commission proposing a definition for

‘‘improper professional conduct’’ under

Rule 102(e)(1)(ii).36 The AICPA

Rulemaking Petition would define

improper professional conduct in a

manner that includes a knowing

violation and a conscious and deliberate

disregard of the professional standards,

as well as a course or pattern of

misconduct.37 The Commission, like the

AICPA, also is proposing that

accountants who engage in knowing

misconduct or a course or pattern of

misconduct should be subject to Rule

102(e)(1)(ii) proceedings.

The Commission preliminarily

believes that the public interest may be

better served with the somewhat

broader definition of ‘‘improper

professional conduct’’ proposed in this

release. While a harmless judgment

error or immaterial mistake should not

trigger a Rule 102(e)(1)(ii) proceeding,

reckless and specific negligent

misconduct may require Commission

action to protect the integrity of the

Commission’s processes and the

interests of the investing public.

Accordingly, the Commission has

determined to seek comment on the

proposed amendment contained in this

release.

IV. General Request For Comments

The Commission requests that any

interested persons submit comments on

the proposed amendment to Rule 102(e).

The Commission also invites comments

on the following specific issues.

The proposed amendment is intended

to clarify the definition of ‘‘improper

professional conduct.’’ Does the

proposed amendment achieve this

objective? This definition is consistent

with how the Commission has applied

the ‘‘improper professional conduct’’

standard. Would another definition of

‘‘improper professional conduct’’ be
33308 Federal Register / Vol. 63, No. 117 /Thursday, June 18, 1998 / Proposed Rules

38See, e.g., Mansbach, SEC v. Steadman, 967 F.2d

636, 641–642 (D.C. Cir. 1992) (both citing

Sundstrand Corp. v. Sun Chemical Corp., 553 F.2d

1033, 1045 (7th Cir.), cert. denied, 434 U.S. 875

(1977)).

39See, e.g., Saba v. Compagnie Nationale Air

France, 78 F.3d 664, 668 (D.C. Cir. 1996), citing

Farmer v. Brennan, 511 U.S. 825, 836–37 (1994);

see generally W. Keeton, et al., Prosser and Keeton

on the Law of Torts (‘‘Prosser’’), sec. 34 at 213–214;

(5th ed. 1984); Restatement (Second) of Torts sec.

500, comment (a) (1965). 40 5 U.S.C. 801 et seq.

better suited to achieving the

Commission’s goal of protecting the

integrity of its processes? Does the

proposed amendment include conduct

that should not be considered

‘‘improper professional conduct?’’ If

yes, what conduct should be excluded?

Does the proposed amendment cover all

of the conduct that should be

considered ‘‘improper professional

conduct’’ under Rule 102(e)(1)(ii)? If

not, what else should be included? The

proposed amendment defines

‘‘improper professional conduct’’ to

include ‘‘reckless’’ conduct. Should the

Commission use a definition of

‘‘recklessness’’ commonly used in cases

brought under Rule 10b-5 of the

Exchange Act? 38 Would a less rigorous

standard of ‘‘recklessness’’ 39 be more

appropriate in the context of a

disciplinary rule such as Rule

102(e)(1)(ii) where the purpose of the

rule is to protect the integrity of the

Commission’s processes?

The proposed amendment defines

‘‘improper professional conduct’’ to

include negligent conduct under two

specified circumstances. In order to

adequately protect the Commission’s

processes, should other circumstances

be included?

Does the term ‘‘applicable

professional standards’’ provide

adequate guidance to the accounting

profession? What weight should be

given to the good faith of an accountant

at the sanctioning stage of a Rule

102(e)(1)(ii) proceeding?

Any interested person wishing to

submit written comments on any of the

issues set forth in this release are

invited to do so by submitting them in

triplicate to Jonathan G. Katz, Secretary,

U.S. Securities and Exchange

Commission, 450 Fifth Street, NW,

Washington, DC 20549. Comments also

may be submitted electronically at the

following e-mail address: rulecomments@sec.gov. All comment letters

should refer to File No. S7–16–98 this

file number should be included on the

subject line if e-mail is used. Comments

received will be available for public

inspection and copying in the

Commission’s public reference room at

450 Fifth Street, NW., Washington, DC

20549. Electronically submitted

comment letters will be posted on the

Commission’s Internet Web site (http://

www.sec.gov).

V. Summary of Initial Regulatory

Flexibility Analysis

The Commission has prepared an

Initial Regulatory Flexibility Analysis

(‘‘IRFA’’) on the proposed amendment

to Rule 102(e). The IRFA indicates that

the proposed amendment would clarify

the standard by which the Commission

determines whether accountants have

engaged in ‘‘improper professional

conduct.’’

The IRFA sets forth the statutory

authority for the proposed amendment.

The IRFA also discusses the effect of the

proposed amendment on small entities.

The IRFA states that approximately

1000 accounting firms can or do appear

or practice before the Commission.

While most of this practice is conducted

by the ‘‘Big Six’’ firms, which are not

small entities, many smaller firms do

practice before the Commission.

However, the Commission does not

collect information about revenues of

accounting firms, which information

generally is not made public by the

firms, and therefore cannot determine

how many of these are small entities for

purposes of the analysis. In any event,

the proposed amendment should have

little or no impact on small entities

because the proposal simply clarifies

the Commission’s standard for

determining when accountants engage

in ‘‘improper professional conduct.’’

The IRFA states that the proposed

amendment would not impose any new

reporting, recordkeeping or compliance

requirements, and the Commission

believes that there are no rules that

duplicate, overlap or conflict with the

proposed amendment.

The IRFA discusses the various

alternatives considered to minimize the

effect on small entities, including: (a)

The establishment of differing

compliance or reporting requirements or

timetables that take into account the

resources of small entities; (b) the

clarification, consolidation or

simplification of compliance and

reporting requirements under the Rule

for small entities; (c) the use of

performance rather than design

standards; and (d) an exemption from

coverage of the Rule, or any part thereof,

for small entities. The Commission

believes it would be inconsistent with

the purposes of the Rule to exempt

small entities from the proposed

amendment. Different compliance or

reporting requirements for small entities

are not necessary because the proposed

amendment does not establish any new

reporting, recordkeeping or compliance

requirements. The proposed amendment

is already designed to clarify the current

standard employed in Rule 102(e)(1)(ii),

and the Commission does not believe it

is feasible to further clarify, consolidate

or simplify the Rule for small entities.

Finally, the proposal does use a

performance standard, not a design

standard, to specify what conduct is

expected of accountants; the

Commission does not believe different

performance standards for small entities

would be consistent with the purposes

of the Rule.

The IRFA solicits comments

generally, and in particular, on the

number of small entities that would be

affected by the proposed amendment

and the existence or nature of the effect.

For purposes of the Small Business

Regulatory Enforcement Fairness Act of

1996, 40 the Commission is also

requesting information regarding the

potential impact of the proposed

amendment on the economy on an

annual basis—in particular, whether the

proposed amendment is likely to have

an annual effect on the economy of $100

million or more. Commenters should

provide empirical data to support their

views.

A copy of the IRFA may be obtained

by contacting David R. Fredrickson,

Office of the General Counsel, Securities

and Exchange Commission, 450 Fifth

Street, N.W., Washington, D.C. 20549.

VI. Cost-Benefit Analysis

The Commission requests the views of

commenters about any costs or benefits

associated with the proposed

amendment. The Commission

anticipates several benefits from the

amendment. The amendment will

provide clearer guidance to accountants.

Members of the accounting profession

will better understand the standard the

Commission uses to determine

‘‘improper professional conduct’’ and

thus conduct themselves accordingly.

Also, the clarifying amendment will

make it easier for the Commission, its

administrative law judges and the courts

to administer the Rule, which will

further benefit the integrity of the

Commission’s processes. The

Commission anticipates no costs

associated with the proposal.

Section 23(a)(2) of the Exchange Act

requires the Commission to consider the

impact of its rules on competition.

Moreover, section 2(b) of the Securities

Act, section 3(f) of the Exchange Act

and section 2(c) of the Investment

Company Act of 1940 (‘‘Investment

Company Act’’) require the

Commission, when engaged in
Federal Register / Vol. 63, No. 117 /Thursday, June 18, 1998 / Proposed Rules 33309

1The weight the Commission must attach to the

views of the D.C. Circuit cannot be overstated.

Under the jurisdictional provisions of the securities

laws, every respondent in a Commission

administrative proceeding has the option of

appealing an adverse outcome to the D.C. Circuit.

See, e.g., 15 U.S.C. 77i(a) & 78y(a)(1).

2Rule 102(e) was formerly designated Rule 2(e).

There are no substantive differences between the

two rules.

3Commissioner Roberts concurred in the

majority’s finding that respondents violated GAAS

and had misapplied GAAP, but dissented from the

finding that these errors amounted to ‘‘improper

professional conduct’’ under Rule 102(e)(1)(ii). 1992

SEC LEXIS 2111, at *47. In Commissioner Roberts’

view respondents’ conduct did not provide a

sufficient basis for a finding that they would

threaten the Commission’s processes. Id. at *48.

4Senior District Judge Reynolds disagreed with

the circuit judges’ conclusion that ‘‘improper

Continued

rulemaking that requires a public

interest finding, to consider, in addition

to the protection of investors, whether

the action will promote efficiency,

competition and capital formation. The

Commission requests data on what

effect, if any, the proposed amendment

would have on efficiency, competition

and capital formation.

VII. Statutory Authority

The Commission is proposing the

amendment to the Rule pursuant to its

authority under section 19(a) of the

Securities Act, section 23(a) of the

Exchange Act, section 20(a) of the

Public Utility Holding Company Act of

1935, section 319(a) of the Trust

Indenture Act of 1939, section 211(a) of

the Investment Advisers Act of 1940

and section 38(a) of the Investment

Company Act.

Text of Amendment

List of Subjects in 17 CFR Part 201

Administrative practice and

procedure, Investigations, Securities.

In accordance with the foregoing,

Title 17, Chapter II of the Code of

Federal Regulations is proposed to be

amended as follows:

PART 201—RULES OF PRACTICE

1. The authority citation for Part 201,

Subpart D continues to read as follows:

Authority: 15 U.S.C. 77f, 77g, 77h, 77h-1,

77j, 77s, 77u, 78c(b), 78d-1, 78d-2, 78l, 78m,

78n, 78o(d), 78o-3, 78s, 78u-2, 78u-3, 78v,

78w, 79c, 79s, 79t, 79z-5a, 77sss, 77ttt, 80a8, 80a-9, 80a-37, 80a-38, 80a-39, 80a-40, 80a41, 80a-44, 80b-3, 80b-9, 80b-11, and 80b-12

unless otherwise noted.

2. Amend § 201.102 by adding

paragraphs (e)(1)(iv) to read as follows:

§ 201.102 Appearance and practice before

the Commission.

(e) Suspension and disbarment.—(1)

Generally. * * *

(iv) With respect to persons licensed

to practice as accountants, ‘‘improper

professional conduct’’ under

§ 201.102(e)(1)(ii) means:

(A) An intentional or knowing

violation, including a reckless violation,

of applicable professional standards; or

(B) Negligent conduct in the following

circumstances:

(1) An unreasonable violation of

applicable professional standards that

presents a substantial risk, which is

either known or should have been

known, of making a document prepared

pursuant to the federal securities laws

materially misleading; or

(2) Repeated, unreasonable violations

of applicable professional standards that

demonstrate that the accountant lacks

competence.

* * * * *

Dated: June 12, 1998.

By the Commission.

Jonathan G. Katz,

Secretary.

Separate Statement of Commissioner

Norman S. Johnson

I write separately to address what I

consider to be the plain import of the

two decisions of the United States Court

of Appeals for the District of Columbia

Circuit in Checkosky v. SEC, 23 F.3d

452 (D.C. Cir. 1994) (Checkosky I), and

Checkosky v. SEC, 139 F.3d 221 (D.C.

Cir. 1998) (Checkosky II). 1 In today’s

release, the Commission proposes to

adopt a negligence standard under Rule

102(e) of our Rules of Practice, a matter

of crucial importance to the accountants

who practice before us. 2 As Judge

Randolph observed:

A proceeding under Rule 2(e) threatens ‘‘to

deprive a person of a way of life to which

he has devoted years of preparation and on

which he and his family have come to rely.’’

Henry J. Friendly, ‘‘Some Kind of Hearing,’’

123 U. Pa. L. Rev. 1267, 1297 (1975). It is of

little comfort to an auditor defending against

such charges that the Commission’s authority

is limited to suspending him from agency

practice. For many public accountants such

work represents their entire livelihood.

Moreover, when one jurisdiction suspends a

professional it can start a chain reaction.

Checkosky I, 23 F.3d at 479 (opinion of

Randolph, J.).

With all due respect to my esteemed

colleagues, today’s release reflects

precisely the same sort of overly

aggressive approach that led to the

Commission’s two stinging defeats in

Checkosky. The consequences of

overreaching in this area might well be

severe. If the Commission selects an

insupportable standard many of the

worst offenders of Rule 102(e) may

escape sanction altogether. Prudence

would seem to dictate a much more

cautious approach than that taken in

today’s release.

Because I believe that the Commission

lacks the authority to adopt a negligence

standard, I must dissent. See Checkosky

I, 23 F.3d 452; Checkosky II, 139 F.3d

221. Even apart from the Checkosky

decisions, adoption of a negligence

standard would contravene public

policy.

Some background is in order.

I.

Respondents in Checkosky were two

accountants who audited the financial

statements of Savin Corporation in the

early 1980’s. The Commission brought

charges against the accountants in 1987,

and in 1992 affirmed an Administrative

Law Judge’s decision finding violations

of Rule 102(e). See David J. Checkosky,

Release No. 34–31094, 1992 SEC LEXIS

2111 (Aug. 26, 1992). In its first opinion,

the Commission found that Savin’s

financial statements were false in that

the company improperly capitalized

certain expenses for research and

development rather than recording them

in their entirety as expenses in the years

incurred. Id. These violations were

based on finding that the auditors, in

violation of Generally Accepted

Auditing Standards (GAAS), had

improperly permitted Savin to

capitalize these expenditures and falsely

certified that Savin’s financial

statements set forth its financial

condition in accordance with Generally

Accepted Accounting Principles

(GAAP). 3 Id.

In Checkosky I, the D.C. Circuit

remanded the case because it was

unable to discern from the

Commission’s opinion the basis for the

Commission’s action other than the

finding that the accountants had

violated GAAS and falsely certified that

the financial statements set forth the

financial condition of the company in

accordance with GAAP. 23 F.3rd at 454.

The Court held that the Commission

was authorized to promulgate Rule

102(e) as a means to protect the integrity

of its processes, but each of the three

judges (Judges Silberman, Randolph and

a district court judge sitting by

designation, Judge Reynolds) issued a

separate opinion.

Judges Silberman and Randolph both

questioned the Commission’s ability to

impose sanctions under Rule 102(e) for

misconduct not rising to the level of

scienter, i.e., misconduct that is only

negligent. 4 Judge Silberman explained

that:
33310 Federal Register / Vol. 63, No. 117 /Thursday, June 18, 1998 / Proposed Rules

professional conduct’’ under Rule 102(e)(1)(ii)

required proof of scienter. 23 F.3d at 493–95.

5See Sundstrand Corp. v. Sun Chemical Corp.,

553 F.2d 1033, 1045 (7th Cir. 1977) (defining

recklessness as ‘‘‘highly unreasonable’’’ conduct

involving ‘‘‘an extreme departure from the

standards of ordinary care’’’); see also, e.g.,

Mansbach v. Prescott, Ball & Turben, 598 F.2d

1017, 1025 (6th Cir. 1979) (following Sundstrand).

6This point is made clear by the concurring

opinion, in which Judge Henderson expressly

disagreed with the majority’s discussion of this

issue. See 139 F.3d at 227.

If the purpose of Rule 2(e) is to protect the

integrity of administrative processes, then

sanctions for improper professional conduct

under 2(e)(1)(ii) are permissible only to the

extent that they prevent the disruption of

proceedings. Punishment for mere

negligence, so the argument goes, extends

beyond this realm of protective discipline

into general regulatory authority over a

professional’s work.

23 F.3d at 456. Judge Silberman further

suggested that the Commission could

not legitimately adopt a negligence

standard under Rule 102(e) because that

might amount to ‘‘a de facto substantive

regulation of the profession.’’ 23 F.3d at

459; see also 23 F.3d 460 (suggestion

that Commission adoption of negligence

standard might be arbitrary and

capricious).

Judge Randolph also questioned the

Commission’s ability to adopt a

negligence standard. In Judge

Randolph’s view, the ‘‘Commission’s

authority under Rule 2(e) must rest on

and be derived from the statutes it

administers,’’ such as Section 10(b) of

the Exchange Act that requires scienter.

See 23 F.3d at 466–69. Judge Randolph

also extensively discussed an earlier

Commission decision that rejected a

negligence standard under Rule 102(e)

in a case involving lawyers, William R.

Carter, 47 S.E.C. 471 (1981). See 23 F.3d

at 480–87. In Judge Randolph’s view,

the reasoning of Carter was equally

applicable to accountants, and

precluded the Commission from

adopting a negligence standard under

Rule 102(e). See 23 F.3d at 483–87.

On remand, the Commission’s

majority opinion did not directly

address the mental state question posed

by the Court. David J. Checkosky,

Release No. 34–38183, 1997 SEC LEXIS

137 (Jan. 21, 1997). While the majority

found that the accountants had behaved

recklessly, it insisted that any deviation

from GAAP or GAAS, including purely

negligent deviations, could violate Rule

102(e), and that the accountants’

recklessness was relevant only to the

choice of sanctions. Id. I dissented from

the Commission’s second Checkosky

opinion because of my belief that

‘‘improper professional conduct’’

requires proof of scienter, which

includes recklessness.5 1997 SEC LEXIS

137, at *48.

On appeal in Checkosky II, the D.C.

Circuit again reversed. The Court again

found that the Commission had again

failed to offer an adequate explanation

of its interpretation of Rule 102(e). 139

F.3d at 222 (referring to the

‘‘multiplicity of inconsistent

interpretations’’ in the Commission’s

opinion). Because of the Commission’s

‘‘persistent failure to explain itself’’ and

‘‘the extraordinary duration of these

proceedings,’’ the Court declined to give

the Commission a third chance to

explain itself, and instead invoked the

extremely rare remedy of remanding the

case with instructions to dismiss. 139

F.3d at 222 & 227.

More importantly for today’s release,

the D.C. Circuit in Checkosky II again

questioned the Commission’s ability to

adopt a negligence standard under Rule

102(e)(1)(ii). 139 F.3d at 225. The Court

appeared to reaffirm its previous

statements about the limits of the

Commission’s authority in disciplining

securities professionals subject to Rule

102(e), remarking that ‘‘adoption of a

negligence standard might be ultra

vires’’ because it might amount to ‘‘a

back-door expansion of [the

Commission’s] regulatory oversight

powers.’’ Id. (citing Checkosky I, 23 F.3d

at 459).6

II.

As explained above, the Checkosky

opinions preclude us, as a practical

matter, from adopting a negligence

standard. Even were the situation

otherwise, public policy considerations

also call for rejection of a negligence

standard. See, e.g., David J. Checkosky,

Release No. 34–38183, 1997 SEC LEXIS

137, at *48 (Jan. 21, 1997) (dissenting

opinion of Commission Johnson). In my

view, ‘‘improper professional conduct’’

in Rule 102(e)(1)(ii) requires proof of

scienter.

Our system of securities regulation is

based on disclosure. To ensure that

Commission filings and other

statements made to the investing public

are truthful and accurate, we have to

rely in large part on the work of

talented, well-trained professionals.

Accordingly, I fully agree with former

Chairman Williams’ statement that we

would be unable to administer

effectively the securities laws if those

‘‘involved in the capital raising process

were not routinely served by

professionals of the highest integrity

and competence, well-versed in the

requirements of the statutory scheme

Congress has created.’’ Keating,

Muething & Klekamp, 47 S.E.C 95, 120

(1979) (concurring opinion of Chairman

Williams); see also Touche, Ross & Co.

v. SEC, 609 F.2d 570, 580–81 (2d Cir.

1979) (because of limited resources,

‘‘the Commission necessarily must rely

heavily on both the accounting and legal

professions to perform their tasks

diligently and responsibly’’). On the

other hand, I also believe that the

Commission has a limited mandate

under Rule 102(e) for determining who

may ‘‘practice’’ before us, and that we

must exercise a high degree of selfrestraint in this area.

As to accountants, the very nature of

their responsibilities within our

disclosure system mandates restraint.

Accountants, like other securities

professionals subject to Rule 102(e),

must make difficult judgment calls,

navigating through complex statutory

and regulatory requirements. In

addition, accountants are required to

follow GAAS and to apply GAAP. These

determinations demand the application

of independent professional judgment

and often involve matters of first

impression.

The Commission itself recognized the

importance of these principles in Carter,

when it asserted that, in order to assure

the exercise of a professional’s ‘‘best

independent judgment,’’ the

professional ‘‘must have the freedom to

make innocent—or even, in certain

cases, careless—mistakes without fear of

(losing) the ability to practice before’’

us. 47 S.E.C. at 504. Equating negligence

with ‘‘improper professional conduct’’

will impair relationships between

professionals and their clients. If such

an adverse impact occurs, our ability to

rely on these professionals to enhance

compliance with the securities laws will

be crippled. I share the view endorsed

by the Commission in Carter that

professionals ‘‘motivated by fears for

their personal liability will not be

consulted on difficult issues.’’ Id.

Securities professionals owe a duty to

serve the interests of their clients. To

discharge this duty, professionals must

enjoy the cooperation and trust of their

clients. Indeed, in construing Carter,

Judge Randolph observed:

(W)ithout a scienter requirement, lawyers

would slant their advice out of fear of

incurring liability, and management therefore

would not consult them on difficult

questions. I cannot see why this sort of

reasoning would not apply as well to

auditors. I recognize that although companies

need not retain outside counsel, they are

legally compelled to ‘‘consult’’ independent

accountants * * * . This creates an

obligation on the part of management to

cooperate with and provide information to

the auditor. * * * There are, however,

degrees of cooperation. Encouraging

management to be completely candid with its
Federal Register / Vol. 63, No. 117 /Thursday, June 18, 1998 / Proposed Rules 33311

auditor about difficult accounting issues may

be just as desirable as encouraging

management to consult candidly with

outside lawyers, and for similar reasons.

Checkosky I, 23 F.3d at 485.

Accountants and attorneys are

members of ‘‘ancient professions,’’

regulated according to rigorous ethical

rules enforced by professional societies

and, in the case of accountants, state

licensing boards. I simply do not believe

that we should recast negligent

violations of an accounting standard as

improper professional conduct under

the Commission’s Rules of Practice.

That is not an appropriate role for this

Commission. Difficult ethical and

professional responsibility concerns are

generally matters most appropriately

dealt with by professional organizations

or, in certain cases, malpractice

litigation. Nor do I believe that mere

misjudgments or negligence establishes

either professional incompetence

warranting Commission disciplinary

action or the likelihood of future danger

to the Commission’s processes.

* * * * *

For all these reasons, I believe that the

Commission lacks the authority to adopt

a negligence standard under Rule

102(e). Likewise, the Commission may

only hold a professional liable for

‘‘improper professional conduct’’ only if

scienter is proven. I urge accountants

and trade groups directly subject to Rule

102(e), as well as any others who have

an interest in Rule 102(e), to submit

their views on this important matter. It

is my most fervent hope that the

Commission receives an abundance of

comment letters responding to this

release.

[FR Doc. 98–16251 Filed 6–17–98; 8:45 am]

BILLING CODE 8010–01–P

DEPARTMENT OF TRANSPORTATION

Coast Guard

33 CFR Part 165

[CGD07–98–023]

RIN 2115–AE84

Regulated Navigation Area; San Juan

Harbor, San Juan, PR

AGENCY: Coast Guard, DOT.

ACTION: Notice of Proposed Rulemaking.

SUMMARY: The Coast Guard proposes to

establish a permanent regulated

navigation area in San Juan Harbor in

the vicinity of La Puntilla in San Juan,

PR. This regulated navigation area is

needed to protect personnel and vessels

moored at Coast Guard Base San Juan

from the hazards created by the wakes

of passing vessel traffic. By establishing

this permanent regulation, the Coast

Guard expects to reduce the risk of

personnel injury and property damage.

DATES: Comments must be received on

or before August 17, 1998.

ADDRESSES: Comments should be

mailed to Commanding Officer, U.S.

Coast Guard, Marine Safety Office, P.O.

Box 9023666, San Juan, PR 00902–3666.

Comments will become part of this

docket and will be available for

inspection or copying at the above

address.

FOR FURTHER INFORMATION CONTACT:

LT D.R. Xirau, Assistant Chief Port

Operations Department, USCG Marine

Safety Office San Juan at (787) 729–

6800, ext 320.

SUPPLEMENTARY INFORMATION:

Request for Comments

The Coast Guard encourages

interested persons to participate in this

rulemaking by submitting written views,

data, or arguments. Persons submitting

comments should include their names

and addresses, identify this rulemaking

[CGD07–98–023], and the specific

section of this proposal to which each

comment applies and give the reason for

each comment. The Coast Guard

requests that all comments and

attachments be submitted in an 8′′ X 11′′

unbound format suitable for copying

and electronic filing. If this is not

practical, a second copy of any bound

material is requested. Persons

requesting acknowledgment of receipt of

comments should enclose a stamped,

self-addressed postcard or envelope.

The Coast Guard will consider all

comments received during the comment

period. It may change this proposal in

view of the comments received.

The Coast Guard plans no public

hearing. Persons may request a public

hearing by writing to Commanding

Officer, Marine Safety Office San Juan at

the address under ADDRESSES. The

request should include the reasons why

a hearing would be beneficial. If the

Coast Guard determines that the

opportunity for oral presentations will

aid this rulemaking, it will hold a public

hearing at a time and place announced

by a later notice in the Federal Register.

Background and Purpose

These proposed regulations create a

regulated navigation area requiring all

vessels to maintain minimum

steerageway in the vicinity of Coast

Guard Base San Juan. These proposed

regulations are necessary to provide for

the safety of personnel and the

protection of vessels that are moored

alongside the piers at Coast Guard Base

San Juan. Coast Guard Base San Juan is

located at La Puntilla in Old San Juan,

at a junction of major channels in the

San Juan Harbor. The Coast Guard

believes that a significant risk exists

under current conditions because wakes

cause damage to vessels and the piers,

and create major safety hazards to

personnel working onboard moored

vessels.

The vessels most affected by wakes at

Base San Juan are 110-foot Coast Guard

patrol boats and other smaller vessels.

Heavy wakes have caused moored

vessels to roll up to 15 degrees without

warning. This places Coast Guard

personnel working onboard these

vessels at higher risk of injury due to the

unexpected movement brought on by

wakes. Moreover, while heavy

equipment and supplies are being

moved on a vessel, a sudden roll could

cause the load to be dropped or the

personnel carrying the load to lose their

balance, possibly resulting in serious

injury. There have been many ‘‘near

miss’’ incidents which could have

proven fatal if personnel had been

directly involved, including heavy

hatches secured in the open position

being jarred loose by strong wakes and

slamming shut without warning.

Heavy wakes also cause damage to

property at Coast Guard Base San Juan.

Vessel hulls, cleats, stanchions, and

gangways have been bent or parted.

Piers have deteriorated more rapidly

due to the added stresses of vessels

affected by wakes. In addition, electrical

shore ties and fueling hoses have been

pulled loose, creating very hazardous

situations. By establishing a minimum

steerageway in the vicinity of La

Puntilla, the risks to personnel and

property inherent to wakes will be

minimized.

Additionally, beginning in June 1998,

five Coast Guard patrol boats will be

relocated to Coast Guard base San Juan.

After this relocation, there will be a total

of eight Coast Guard vessels

permanently stationed in San Juan. The

construction of new piers to

accommodate the additional vessels will

commence prior to the end of Fiscal

Year 1998. These proposed regulations

will also serve to minimize hazards

during the construction, which is

expected to take one year to complete.

Regulatory Evaluation

This proposal is not a significant

regulatory action under section 3(f) of

Executive Order 12866 and does not

require an assessment of potential costs

and benefits under section 6(a)(3) of that

order. It has been exempted from review

by the Office of Management and