successful implementation of a principles - based approach is, however, dependent on cultural changes occurring in the accounting and auditing profession and effective oversight. without these two factors, a principles - based system could easily be used as the basis for manipulating financial information for reasons other than improving its quality and transparency. principles alone, however, do not ensure good financial reporting, which leads me to the integrity of the audit process. integrity of the external audit process at the heart of questions about the quality of accounting, auditing, and disclosure practices of major u. s. companies are weaknesses in the external audit process. many auditors have been too focused on cross - selling new services to corporations and have lost sight of the fact that the credibility of their independent opinion regarding the fairness of a financial statement is the core value that they bring to the marketplace. congress and others have determined that the industry cannot regulate itself, and the implementation of regulatory reform now rests with the sec and the new public company accounting oversight board. it is in your professional interest to support this new entity as it endeavors to strengthen the auditing process. let me be clear about my message. the root causes of the breakdown in corporate accounting practices that have been widely disclosed in the past few months are ineffective corporate governance, financial reporting, and risk - management practices. the lessons from recent events are not new. rather, recent events should serve as a wake - up call to corporate boards, management, corporate accountants, and auditors to follow through on their fundamental and traditional professional and ethical standards of conduct and control processes. although the issues are not new, the scope and frequency of breakdowns are of concern. as new reports and congressional investigations on various aspects of the breakdowns occur, corporations and auditors should address the issues raised so that they do not compromise the reputation of their organizations. at enron and other companies, weak corporate governance practices apparently permitted managers to engage in sham transactions and misleading financial reporting. some outside auditors erred in trying too hard to please an important client, to the point of engaging in criminal conduct. they seem to have lost sight of their professional role of assuring users of financial reports that the statements fairly represent the condition of the corporation and of the fact that reports should communicate, not conceal, the level of risk. some observers have asserted that new accounting standards - - or, as i have discussed, a principles - based method of setting standards - - are needed. in some ways that may be true. but judging

risks and control of the assets were not removed from that organization through the creation of special - purpose vehicles, as required by gaap. in another example, the banking regulators have jointly issued for comment new guidance related to credit cards. this guidance not only deals with unacceptable practices, but also clarifies that earnings recognition of fees billed to customers should reflect the expected ability to collect those fees. we have also recently seen a number of cases in which internal control weaknesses and a general lack of documentation were identified through the examination process, but not through the audit attestation process. these situations were significant enough to raise safety and soundness concerns. accordingly, in considering these matters, we are reviewing the workpapers of external auditors, in order to get a better understanding of how the attestation process can best meet our objectives. in some cases, auditor attestation reports on internal controls, as required by fdicia, have become too routine. with sarbanes - oxley requiring these reports for all public companies, it is time for the banking industry and accounting profession to revitalize procedures and efforts in this area. while evaluating the risk of inaccurate or incomplete financial information, we have traditionally placed a high degree of reliance on the work of the external auditor - - as well as the internal auditor for that matter. so i urge you today to redouble your efforts in examining financial statements and evaluating internal control systems, as well as insisting on adequate levels of documentation. accounting and auditing in a global arena the topics that i have addressed in my presentation today are receiving increased attention not only in the united states but also internationally. indeed, the international accounting profession is proceeding at a rapid pace on a global scale to enhance standards and practices. the european union plans to require its publicly traded companies to adopt the standards of the international accounting standards board ( iasb ) in 2005. the international auditing standards - setter - the international audit and assurance standards board - is also engaged in efforts to improve governance, audit standards, and transparency. high - quality control practices by member firms continue to be sought by the international federation of accountants. we have been actively working with these organizations, primarily through the basel committee on banking supervision, to promote the adoption and implementation of standards, which will improve global banks'accounting, auditing, and disclosure practices. internationally, the federal reserve actively participates in the basel committee on banking supervision's accounting task force and the transparency group that are seeking to enhance