mentioned earlier the pcaob. the pcaob was created through the sarbanes - oxley act to oversee the auditors of public companies. the pcaob has recently approved auditing standard no. 2, an audit of internal control over financial reporting conducted in conjunction with an audit of financial statements. the new standard highlights the benefits of strong internal controls over financial reporting and furthers the objectives of sarbanes - oxley. this standard requires external auditors of public companies to evaluate the process that management uses to prepare the company's financial statements. external auditors must gather evidence regarding the design and operations effectiveness of the company's internal controls and determine whether the evidence supports management's assessment of the effectiveness of the company's internal controls. while the new standard allows external auditors to use the work of others, including work performed by internal auditors, it emphasizes that external auditors must perform enough of the testing themselves so that their own work provides the principal evidence for making a determination regarding the company's controls. based on the work performed, the external auditor must render an opinion as to whether the company's internal control process is effective, which is a relatively high standard. in addition, as part of its overall assessment of internal controls, the external auditor is expected to evaluate the effectiveness of the audit committee. if the audit committee is deemed to be ineffective, the external auditor is required to report that assessment to the company's board of directors. this new standard will certainly put more demands on external auditors and public companies alike. but in the world of business and financial innovation and growing complexity of firms, these standards should encourage greater reliability of corporate financial statements and therefore, regain the confidence of the public and the trust of financial markets. conclusion in conclusion, i hope my views will give you an opportunity to think about some of the challenges both accountants and auditors face in today's business environment. the accounting industry should be cautious and prudent as it debates the merits of fair value accounting. accountants and auditors alike must be knowledgeable of the models and assumptions used in determining the fair value of products and services. a models - based approach to valuations must produce results that accountants, auditors, and market participants feel are objective. standardsetters have the daunting task of balancing the need to provide accounting principles that keep pace with financial innovation with the need to promulgate standards that produce accurate, reliable and verifiable results

economic disruptions when it bites. the difficulty of managing the y2k problem why has it been so difficult for people to come to terms with the year 2000 problem? at the most basic level of any organization - be it public or private, large or small - the y2k problem was all too easy to ignore. it is a hidden threat, cloaked in the arcane language of computer programs and in embedded microchips. as such, it was difficult at first for senior management in the corporate world and the public sector to recognize the serious nature of the problem. this was compounded by the fact that the costs and benefits of the situation for an individual operation are not easily quantified nor are they attractive. but after an initial period of denial, the majority of us business leaders now have recognized the problem and are taking action to correct it. nonetheless, given the pervasiveness of the problems involved, i suspect that even the most thoroughly prepared organizations are worried that something important might be missed. indeed, many organizations are developing elaborate workarounds and other contingency plans as insurance against y2k disruptions. thus, uncertainty about the ultimate effectiveness of y2k remediation programs already is affecting corporate investment and production plans and obviously will be with us until at least january 2000. the second feature of the millennium bug that makes it so difficult to analyze is the interrelated character of many computer systems. an individual company may be satisfied that it has done all it can to fix its own systems, but it still may feel very vulnerable to the actions taken by its suppliers and customers. in an environment where just - in - time inventory systems and electronic data interchanges ( edi ) have linked economic activities very closely together, one firm ’ s failure has the potential to ripple through significant segments of the chain of production, services, and distribution. thus, greater coordination of y2k remediation activities would have benefits for everyone. but it is clearly impossible to coordinate the y2k activities of millions of individual establishments. to help fill this void, numerous organizations have emerged as clearinghouses of information, and i have high hopes for efforts such as “ national y2k action week ”, which was just sponsored by the small business administration ( for the president ’ s council on the year 2000 ), together with a number of private groups. other institutions are functioning as vehicles for system testing. witness this past summer ’ s inception of federal reserve payment system testing