U.S. Securities & Exchange Commission
SEC Seal
Home | Previous Page
U.S. Securities and Exchange Commission

Comments on Proposed Rule:
Revision of the Commission's Auditor Independence Requirements

[Release Nos. 33-7870; 34-42994; 35-27193; IC-24549; IA-1884; File No. S7-13-00]

Author: =?Windows-1252?Q?Benito_Arru=F1ada?= at Internet Date: 09/12/2000 2:31 PM Normal TO: RULE-COMMENTS at 03SEC CC: "arrunada" at Internet Subject: File no. S7-13-00 ------------------------------- Message Contents LETTER ALSO SENT BY AIRMAIL, WITH ENCLOSURES, ON SEPT 12TH 2000 _________________________________________________________________ Barcelona, September 12, 2000 Mr. Jonathan G. Katz Secretary Securities and Exchange Commission 450 5th Street, N. W. Washington, D.C. 20549-0609 Re: Revision of the Commission's Independence Requirements SEC File No. S7-13-00 Dear Mr. Katz: As a professor of business organization, I have conducted empirical, problem-driven research, and have studied many of the issues implicated by the SEC's rule proposal regarding auditor independence. Based on this research, I consider that non-audit services produce many benefits that the SEC proposal overlooks or underestimates, including not only economies of scope but also improved competition. This is a brief summary of the normative conclusions reached in this research: 1. My book The Economics of Audit Quality: Private Incentives and the Regulation of Audit and Non-Audit Services (Kluwer Academic Publishers: Boston, 1999) focuses on market mechanisms which protect audit quality. By providing a better understanding of these market mechanisms, it helps in defining the content of rules and the function of regulatory bodies in facilitating and strengthening the protective operation of the market (chapters 1-3). The conclusion with regard to non-audit services is that their provision generates beneficial effects in terms of costs, technical competence, professional judgment and competition and, moreover, need not prejudice auditor independence or the quality of these services (chapters 4-7). This assessment leads, in the normative sphere, to recommending a legislative policy aimed at facilitating the development and use of safeguards provided by the free action of market forces (chapter 8). Regulation should thus aim to enable the parties-audit firms, self-regulatory bodies and audit clients-to discover through competitive market interaction both the most efficient mix of services and the corresponding quality safeguards, adjusting for the costs and benefits of each possibility. 2. Pursuing this line, my article "The Provision of Non-Audit Services by Auditors: Let the Market Evolve and Decide" (The International Review of Law and Economics, vol. 19, no. 4, December, 1999, 513-31) searches for and defines efficient regulation of the provision of non-audit services by auditors to their audit clients. Particular emphasis is placed on the role of fee income diversification and the enhancement, through disclosure rules, of market incentives to diversify. A rule of mandatory disclosure of client diversification is examined in order to facilitate the task of the market with regard to achieving the optimal degree of auditor independence. 3. The article "Audit Quality: Attributes, Private Safeguards and the Role of Regulation" (The European Accounting Review, vol. 9, no. 2, 2000, 205-224) examines the private mechanisms used to safeguard quality in auditing, with a view to defining rules capable of facilitating the performance of market forces. An outline is given of a general theory of private quality assurance in auditing, based on the use of quasi-rents to self-enforce quality dimensions. Particular attention is also paid here to the role of fee income diversification as the key ingredient of private incentives for audit quality. The role of public regulation is then situated in the context defined by the presence of these safeguard mechanisms. This helps in defining the optimal content of rules and the function of regulatory bodies in facilitating and strengthening the protective operation of the market. By making sense of the interaction between regulation, quality attributes and private safeguards, the analysis helps to evaluate the relative merits of different regulatory options. I am attaching copies of these works. If you have any questions or comments regarding the above please do not hesitate to contact me. Very truly yours, Benito Arruņada Professor of Business Organization Tel (+34) 935 422 572 Fax (+34) 935 421 746 Adm. Asst.: Anna ALSINA anna.alsina@ajau.upf.es Tel (+34) 935 422 714 For more information and full texts of some of the publications mentioned in the letter, see "Auditing Sector" in http://www.econ.upf.es/~arrunada

Author: "Scott Blair" at Internet Date: 09/12/2000 12:58 PM Normal TO: RULE-COMMENTS at 03SEC Subject: File No. S7-13-00 ------------------------------- Message Contents I am responding to the question of seperating auditing services from non-auditing services. I am an individual investor, in both mutual funds and stocks. I am concerned about one organization providing auditing services, which may be compromised by the opportunity to provide more lucretive consulting services. While there may not be a true conflict, there is certainly a perception of one, and that the auditors comments may be compromised or worded less aggressively, so as not to harm a potential consulting agreement from another part of the country. This is similar to a legislator having an interest in the company which is bidding for a contract under that legislator's jurisdiction. I would strongly discourage continuation of the status quo, without some modification, to protect both individual and institutional investors. Scott C. Blair, MD Columbus, OH

Author: "Rodney Caldwell" at Internet Date: 09/12/2000 4:14 PM Normal TO: RULE-COMMENTS at 03SEC Subject: File No. 57-13--00 ------------------------------- Message Contents I support the SEC's efforts to assure independence and objectivity in audits. As a professional engaged in provision of expert testimony in court cases I know it is important to avoid even the appearance of impropriety. An auditor who also provides consulting to the same company certainly presents the appearance of impropriety. How can a truly independent audit be done if an adverse finding could jeopardize current or future consulting contracts. Thank you for considering my opinion. Rodney E. Caldwell, Ph.D.

Author: "Sean Callahan" at Internet Date: 09/12/2000 6:42 AM Normal TO: RULE-COMMENTS at 03SEC Subject: Conflict of interest regarding auditing services ------------------------------- Message Contents I am a CPA licensed to practice in the state of Arizona. I do believe that a auditor's independence is effected by the pressure a firm has to "sell" additional services under its consulting wing. How can someone have the courage to do the right thing (insisting a transaction be recorded a certain way) when his client will be dangling a golden carrot above his head for some lucrative consulting services. It just does not make sense if you think about. I am not saying that auditor do not have ethics, but how can his/her independence not be effected. Sincerely, Sean M. Callahan, CPA Lic #: 7420-E

Author: "Carlson; Rick" at Internet Date: 09/12/2000 2:22 PM Normal TO: RULE-COMMENTS at 03SEC Subject: RE: File No. S7-13-00 re: Auditor Independence ------------------------------- Message Contents Sirs: I believe the SEC's initiative re: the subject of Auditor Independence, File No. S7-13-00, is absolutely the right thing to do at this time (and probably was warranted some time ago). The potential conflict within accounting firms, which might affect the independence of their clients' audits due to the lucrative consulting fees from those same clients, is a real possibility even if it's one that's difficult to prove. In my mind, the fact that the "door is open" is the only revelant fact; the question of whether someone will walk through the door is really only a questiion of who and when, not if it'll happen. A professor teaching accounting in an MBA course I took in the early-80's was already on top of this issue. He instructed everyone in the class who was a shareholder of any public company to vote "No" on their proxy cards for the recurrent question of retaining the company's present auditing firm. He felt that the accounting firms and their clients tend to get way too cozy after years of working together and that the shareholders should express their concern about this issue of true independence. Anyway, to make a long story short - keep up the fight!! - Rick Carlson <> <>

Author: "J Copeland" at Internet Date: 09/12/2000 1:52 PM Normal TO: RULE-COMMENTS at 03SEC Subject: Re: SEC Proposed Rule Governing Audit Independence Re: File ------------------------------- Message Contents My name and address: J. D. Copeland, CPA 216 Opal Hewitt, TX 76643 > > > I am a CPA with a small local solo practice located in Hewitt, TX . In addition > to the typical services offered by CPA firms, I offer consulting and financial > services as well. My concerns with the subject rule include the following: > > There is already an entity that is established to address the issue raised > by the SEC in its proposed rule--the Independence Standards Board. > I do not see why SEC's proposed rule should be issued before > the Independence Standards Board has a chance to do its job. > > In any event, the Proposed Rule's comment period is too brief to allow for > thoughtful response by interested parties. At a minimum, the comment > period should be lengthened. > > From a personal standpoint, it seems likely that the SEC's proposed rule > will > have a trickle-down effect and adversely impact my practice. Given > that > state boards have a way of following the federal government's rules, > this > result will probably occur regardless of whom the SEC is targetting > with > this rule. > > When I added financial services to my practice, I did so with the clear thought > in mind that my independence must not be impaired. I feel I have successfully > avoided possible conflicts of interest and maintained the professional integrity > of my firm. I do not see how the SEC's proposed rule will add any value to its > role. > > Thanks, > > J. D. >

Author: "Farrales; Aileen" at Internet Date: 09/12/2000 10:02 AM Normal TO: RULE-COMMENTS at 03SEC CC: "Caneva; Dan" at Internet CC: "Chavez-Rey; Anna Marie" at Internet Subject: Electronic Filing by Investment Advisers; Proposed Amendment ------------------------------- Message Contents To Whom It May Concern: can you give an estimated time as to when we can expect the adoption of the proposed rule regarding the Form ADV? According to the SEC website this rule is still in its proposal stage. Please advise. V. Aileen Farrales, Transamerica

Author: Robert Fuentes at Internet Date: 09/12/2000 1:05 PM Normal TO: RULE-COMMENTS at 03SEC Subject: File No. S7-13-00 ------------------------------- Message Contents There should not be a higher value placed on consulting compared with auditing of the financials of publicly traded companies. This will reduce the obvious conflict of interest and level the playing field in an area of vital public interest. -Sincerely, Robert Fuentes, MD

Author: "John Gilpin" at Internet Date: 09/12/2000 2:52 PM Normal TO: RULE-COMMENTS at 03SEC Subject: File No. S7-13-00 ------------------------------- Message Contents I recently read where you are considering some form of separation between Auditing and Consulting services. I strongly support your efforts. As a shareholder in companies that I feel have lied to me, I am more than tired of seeing my hard-earned dollars invested in a company that is not fully disclosing critical information or flat out lying to me. In addition, recourse seems so limited. Class action suits hardly compensate for the loss of my capital as a result of this kind of fraud. (In the past couple years I have felt the pain of investing in both Ikon and MicroStrategy.) Keep up the good work. Your efforts are commendable. John Gilpin

Author: "Karl Hartkopf" at Internet Date: 09/12/2000 6:21 PM Normal TO: RULE-COMMENTS at 03SEC Subject: File No. S7-13-00 ------------------------------- Message Contents Dear Chairman Levitt, I want to first congratulate you on your stupendous success in helping to minimize selective disclosure in the financial equity markets. You have helped to create and sustain the long term viability and democracy of savings and investment by all investors. Second, I want to put my full support behind your initiative to secure "Auditor Indenpendence". You know why you are doing it so I won't restate what you already know. This initiative along with the prevention of selective disclosure measures will bring investors a step closer to being able to invest in a "nearly perfect market". Thank you for listening and understand that you are a hero to thousands of people, even if they don't realize it or recognize it. Karl Hartkopf

Author: Barb and Bruce Herdman at Internet Date: 09/12/2000 9:12 AM Normal TO: RULE-COMMENTS at 03SEC Subject: file S7-13-00 ------------------------------- Message Contents I am paying you to pursue the irregularities and potential problems created by conflict of interest. I personally depend on the accuracy and veracity of audited reports for much of my investing decisions. Please continue to forcefully oversee all aspects of publicly traded securities. Thank you, Bruce Herdman SCPO USN(ret)

Author: Jesse Kiehl at Internet Date: 09/12/2000 2:55 PM Normal TO: RULE-COMMENTS at 03SEC Subject: File No. S7-13-00 ------------------------------- Message Contents To Whom it May Concern: I was recently made aware of a proposed SEC rule that will forbid outside accounting firms from consulting for the companies whose books they audit. I support such a rule. The realities of the modern corporate world make performing such dual roles highly suspect. There are undue, unnecessary, and inappropriate incentives to malfeasance necessarily present in such an arrangement. To be precise, the risk of glossing over problems with the books to avoid disrupting the consulting relationship is too high to bear. The incredible rate of growth in consulting income for companies that do auditing far outstrips the rate of growth from the auditing itself. Public confidence in the stability and security of America's financial markets will not bear this situation indefinitely. High school history texts remind us of the SEC's origins. When the free market is allowed to range so far afield that integrity and honesty are compromised, that market will fail. Or, to clarify with metaphor, free-range cattle taste better, but only if there's a cowboy around to keep them from falling off a cliff. It will be said that there is no proof of wrongdoing from these arrangements to date. That may be true, but it is entirely irrelevant to whether this rule is warranted. It strains belief to claim that there are no unrevealed wrongdoings in America's financial world. The absence of proof in hand, however, is also irrelevant. Simply: the public's confidence must be maintained. Never forget that financial markets work only by unanimous consent. If investors lose confidence in the integrity of the system, or any major part thereof, we will divest ourselves rapidly, and the whole system will crash (see high school history note above). I do not suggest that this is such a situation in and of itself, but as an investor who holds both mutual funds and individual stocks, I must know that the financial statements over which I pore are reliable, accurate, and untainted by the secondary profits of an accounting/consulting house. Please adopt the proposed rule. Very truly yours, Jesse W. Kiehl 220 Seward Street Juneau, AK 99801 P.S.: Please acknowledge receipt of these comments.

Author: at Internet Date: 09/12/2000 1:39 PM Normal TO: RULE-COMMENTS at 03SEC Subject: File No. S7-13-00 ------------------------------- Message Contents Dear Sir or Madam, I am writing today to express support for the SEC's actions to separate audit from non-audit services, I believe that it is a positive move in the correct direction, and will ultimately lead to greater objectivity in the accounting profession as well as more accurate financial information to private investors. Best of luck in your endeavors... Kavan Lee 10944 Strathmore, Suite 301 Los Angeles, CA 90024

Author: Eckhard Lucius at Internet Date: 09/12/2000 1:55 PM Normal TO: RULE-COMMENTS at 03SEC Subject: File No. S7-13-00 ------------------------------- Message Contents Content-Type: text/plain; charset=unknown-8bit Dear Sirs, I strongly support your move to separate Consulting from Auditing Services. My opininon is based upon experience formed in two capacities: a) as a Finance Professional working for publicly traded [US and European] companies: I've been involved with company audits and auditors for many years now. It is evident to anyone involved in this business that no-one is free of conflicts of interest, auditors are no exception. While I have no direct experience with Consulting Services being sold by auditors, I have personally experienced how the mere desire of auditors to STAY auditors come next year is sufficient to compromise their independence of judgement and to turn a blind eye on debatable accounting decisions. How much more is the prospect of getting lucrative consulting orders going to affect this independence? Being an auditor requires you to keep a fair distance to your client which is difficult enough considering that the client can and likely will turn elsewhere if you take to harsh a stance. It's harder if you're actively vying for extra business. Another potential problem - that I've not been directly involved in but witnessed from a distance - is that auditors are likely to be confronted with the recommendations of their Consulting arm. One typical example (typical because of the conflict of interest, but also because of the the type of consulting work most likely to be given to auditors) is the centralisation of Financial accounting across Europe in just one country. Clearly the customer is interested in keeping the accounting as simple as possible, and Consultants are paid to help them doing so. This can - and did - result in 'cutting corners' and a fairly wide interpretation of what are 'material' issues. An auditor might take a different - and stricter - view of what is material and how closely local laws need to be observed, but will then be confronted with the time- and cost-saving recommendations made by his Consultant colleagues. Customers don't like paying twice for conflicting advice... b) as an investor and shareholder in a number of (US and non-US) companies and being German and residing in Germany myself: US stock markets stand out in the world with regard to the reliability and clarity of financial information presented and easily available. It is easier and safer for me to invest in US companies than in German companies - one of the reasons being that US-GAAP is much preferable over German public accounting rules. The other, equally important reason however is that I can generally trust the numbers I see, because there is a strong institution (SEC) that enforces the rules. Without that trust, I would and could not invest in US companies, just like I don't invest in a number of countries with weaker rules (or rules I'm not familiar with). To me the credibility and trust which SEC and hence financial statements enjoy in the US are the bedrock and foundation on which US financial mar kets are built. Ensuring Auditors and Audits are as independent as possible in their important role is another cornerstone of this trust. Everything should be done to remove possible conflicts of interest, and the separation of Auditing and Consulting clearly is a move in that direction. Respectfully Eckhard Lucius Auenstr. 4 80469 Munich Germany

Author: at Internet Date: 09/12/2000 6:10 PM Normal TO: RULE-COMMENTS at 03SEC Subject: File No. S7-13-00 ------------------------------- Message Contents I am in favor of Auditor Independence. I would like to see accounting and consulting services kept separate to prevent conflicts of interest. pmase@aol.com Pamela B. Mase

Author: John Mikovsky at Internet Date: 09/12/2000 11:23 AM Normal TO: RULE-COMMENTS at 03SEC Subject: File No. S7-13-00 ------------------------------- Message Contents To Whom It May Concern: I am writing on the subject of "Auditor Independence." The subject here is conflict of interest, plain and simple. How can a single firm generate fees for auditing services and consulting services from the same company? I feel that legislation should be passed where auditors and consultants should at least be required to be from companies which do not have their revenues related. Therefore, if Arthur Anderson, for example, wants to have an account where they are responsible for audits at least make Ernst & Young, for example, provide the consulting services. Hence, make the consultants earn their fees and make the auditors perform a comprehensive audit and serve as a check for the consultants. This will ensure the integrity of the resulting financial figures which as everyone knows serves as an important yardstick in countless business decisions everyday inside and outside the company itself. Individual investors as well as the company's own staff would benefit from having the most accurate information on the state of the company's financial standing. No one should be forced to make investment decisions or decisions involving the company's future growth based on some firm's "spin" for which they were able to paid double the fees. Thank you for your attention. Regards, John M. Mikovsky

Author: "Mike Nickerson" at Internet Date: 09/12/2000 3:54 PM Normal TO: RULE-COMMENTS at 03SEC CC: "Tina Turgeon" at Internet CC: "Susan W Longley" at Internet CC: "John Baldacci" at Internet CC: "Tom Allen" at Internet Subject: Reference File No.: S7-13-00 ------------------------------- Message Contents To Whom It May Concern: The above proposed Rule amounts to Overkill for the majority of CPA's providing audit and other attestation services. This attempt to limit auditors to those who do ONLY audit work for the client is actually reminiscent of "nationalists" who, several years ago screamed, to "Buy American!". Those preaching that ideology failed to realize the interdependence of a global economy, just as this Rule's proposers fail to appreciate the client need for more encompassing accounting services. A better solution might be to address the issue itself, with more stringent disclosure requirements pertaining to auditor - client relationships. Mike Nickerson, C.P.A.

Author: "Chuck Pietka" at Internet Date: 09/12/2000 7:38 PM Normal TO: RULE-COMMENTS at 03SEC CC: "Robert L. Bunting" at Internet CC: "Ed Drosdick" at Internet Subject: S7-13-00 ------------------------------- Message Contents The proposed rule changes regarding investments and employment relationships seem to be appropriate. The proposed rule changes prohibiting non-audit services to attest clients seem over reaching and will receive many comments. While many of those comments will repeat those already on record, the following may add some additional thoughts and provide a way to deal with the perceived issues in a more effective manner. 1. I have spend my entire career serving small to medium size businesses. I am confident the result of the proposed changes would be a reduction in available capital for emerging and smaller businesses. The effect of the change will be to concentrate all the SEC attest services in a small number of firms and dramatically limit competition. The BIG 5 are already notifying smaller clients that they will have to pay dramatically higher fees to the BIG 5 firm auditor or find another firm to do the work. Non-regulatory economics and strategies are driving these changes. It is not uncommon for a BIG 5 client to be advised that fees will increase 50% or more. The impact will be that the barriers to entry to obtain capital in the public market will increase dramatically and only a few very powerful CPA firms will remain in the marketplace to provide services to SEC registrants. There will be a spin off effect that will increase attest fees for other businesses seeking such services as the BIG 5 will no longer serve them and, to the extent lower tier firms fill the void, it will be at an ever higher cost. Thus, the concentration of attest services in the BIG 5 will have a detrimental effect at all levels of the economy. 2. The possibility that other agencies ( such as the DOD, SBA, DOL, FDIC and numerous state acquisition agencies that purchase services from smaller and medium sized businesses) will adopt similar rules on the coat tails of the SEC will cause further complications for small businesses. This is inevitable because the failure of such agencies to adopt the tighter SEC standards would imply that these agencies were accepting a lower quality service and the credibility of all attest services provided outside the SEC domain would become suspect. Therefore, the cost and availability of attest services would be impacted at all levels of business. 3. In my 31 years of experience, I have never seen an audit decision "favorable" to a client based upon the financial interest of the auditor. Our present litigious and regulatory environment causes the auditor, in considering his/her own financial interest, to make the more conservative decision. The financial interest of the CPA firm is not limited to the collection of the current fee, but to the overall health of the firm and, in the case of non-BIG 5 firms, the very existence of the firm. To the extent the SEC has observed otherwise, I understand the situations to be isolated, not systematic. However, to the extent that there may be a subtle bias, the SEC might consider removing the short-term financial risk to the auditor by developing policies similar to those outlined below: a. Require all prior audit fees be paid in full prior to the start of any (including interim) subsequent attest work for the registrant. b. Require all SEC registrants to pay the greater part of attest fees in advance. c. Require that any non-attest fees be paid currently at the time the post year end audit work begins and at the time the auditor's report is released. Rules could also be promulgated to require non-audit fees be billed as incurred so that the CPA firm does not have a significant financial risk in unbilled non-attest services. d. Consider promulgating a rule that audit fees must be commercially reasonable and not a low margin "loss leader" for other services. The goal of the SEC should be to help provide confidence in the financial reporting of registrants, not to make unnecessary changes that will have disruptive impacts on the entire financial community, and, in particular, smaller businesses that also require services from the same firms. The suggestions above would go a long way to bolster the public's confidence in the services provided by those auditing SEC registrants and provide a real reduction in bias for those who might be subtly influenced by the financial consequences to the auditor. I am not aware of any significant evidence of audit failures because the same CPA firm provided non-attest services. While there may be a theoretical issue in this area, it does not seem to be real. The rule changes to be made, to the extent necessary, should be directed at solving demonstrated problems. Charles E. Pietka 206.447.4254 voice 206.622.9975 fax chuckp@mossadams.com

Author: at Internet Date: 09/12/2000 11:35 AM Normal TO: RULE-COMMENTS at 03SEC Subject: File No. S7-13-00 ------------------------------- Message Contents As an individual investor I would like to register my support of the SEC regarding Auditor Independence. Audit and non-audit services must be kept separate if they are going to merit public trust. One is a profession, and the other is a business whose goal is to make money. Thank you, Suzanne Randolph, Investor

Author: "Keith Riffe" at Internet Date: 09/12/2000 4:23 PM Normal TO: RULE-COMMENTS at 03SEC Subject: S7-13-00 ------------------------------- Message Contents The purpose of this E-mail is to protest the proposed SEC rule prohibiting non-audit services to CPA firm's attest clients. We serve smaller SEC registrants that require extensive assistance in order to comply with SEC reporting rules. The rule proposed by the SEC will effectively eliminate our ability to provide this service. The losers are SEC, the client and the investing public. Small registrants rely on their CPA firms to perform not only the audit function, but also give them advice necessary to be successful in business and comply with the regulations. The advice touches many shores and the lines are blurred. It will be difficult, if not impossible, for these enterprises to segregate their single CPA firm relationship into multiple segments in order to comply with the new independence rules. The potential consequence of these new rules is that CPAs will refuse to provide audit services or require excessive fee increases. Most CPA firms (below the Big Five in size) will stop serving SEC registrants. This will further restrict the access of smaller companies to reasonably priced audit services. There appears to be a lack of evidence to support the SEC's presumption that the prohibited services compromise independence. It is likely that under this proposal that even the largest audit firms will not be able to retain the experts necessary in today's technological environment to render appropriate services to clients (regardless of size). This idealistic approach could reduce the quality of audits, limit access to necessary services and do damage to the very investing public that the SEC is charged with protecting. Thanks for listening. C. Keith Riffe

Author: Priscilla & Ted Ruegg at Internet Date: 09/12/2000 5:51 PM Normal > >__Priscilla J. Ruegg and Edward L. Ruegg____________________________ Reply Separator _________________________________ >Subject: 57-13-00 >Author: Priscilla & Ted Ruegg at Internet >Date: 09/10/2000 11:20 AM > > >Fool on, SEC, we are with you.

Author: at Internet Date: 09/12/2000 2:28 PM Normal TO: RULE-COMMENTS at 03SEC Subject: File No S7-13-00 ------------------------------- Message Contents As an individual investor I am concerned about the conflict of interest that results from auditors providing non-audit services to their clients. I strongle believe that there should be a ban enacted to prevent auditors from providing non-audit services to their audit clients. Jane A Smith

Author: "Kathryn Summers" at Internet Date: 09/12/2000 11:01 PM Normal TO: RULE-COMMENTS at 03SEC Subject: File No. S7-13-00 ------------------------------- Message Contents I feel strongly that auditing firms should be as independent as possible of the businesses they are auditing. Auditing firms should not be providing consulting services to the same businesses they audit. As a consumer and an investor, I need to know that auditing firms have no financial ties to businesses other than the audit itself. The conflict of interest is so strong that I beg the SEC to take action. Auditing firms should not be allowed to provide consulting firms to the same businesses they audit. Kathryn Summers 5304 Carolwood Dr Greensboro, NC 27407

Author: Mark Telpner at Internet Date: 09/12/2000 7:50 PM Normal TO: RULE-COMMENTS at 03SEC Subject: Reference file no. S7-13-00 ------------------------------- Message Contents It appears that the AICPA and others are pushing for a massive letter writing campaign against your proposal governing audit independence. As the managing partner of a 20 person local firm in Chicago I feel that another voice should be heard. While I do not like the idea of the SEC dictating audit rules in general I must agree with your current proposal. However, my agreement comes from another direction. For years the mid-size firms have suffered from the "big %" under pricing audits so that they could get into a client and sell them consulting services. For those of us that do not render a significant amount of consulting services this has put us at a significant disadvantage. I believe that if your rule were put in place then the "Big 5" would have to price their audits in a more realistic manner. We and other members of the profession would benefit from this anticipated response. You have our support. Mark Telpner Baygood Telpner & Rose Chartered 312 West Randolph Street Chicago, IL 60606

Author: Tom Thalmann at Internet Date: 09/12/2000 6:19 AM Normal TO: RULE-COMMENTS at 03SEC Subject: File No. S7-13-00 ------------------------------- Message Contents Twenty five years ago I was a young auditor working for a small CPA firm in Chicago and saw greed and self promotion first hand. I support the separation of consulting work from audit attestation. It is about time. Tom Thalmann CMA CFM

Author: "altinklep" at Internet Date: 09/12/2000 5:56 PM Normal TO: RULE-COMMENTS at 03SEC Subject: reference file S7-13-00 ------------------------------- Message Contents Andrew Tinklepaugh,CPA 3001 Stearns Hill Rd. Waltham,MA 02451 Reference file S7-13-00 Dear SEC, I am against the proposed rule prohibiting CPAs who perform audits for SEC clients from providing other non attest services. First of all, it would make it that much more expensive and inefficient for businesses to require hiring another firm to do the tax work or other non-attest accounting work. The other firm providing the service would not have the information readily available that the audit firm already has. Therefore the wheel has to get reinvented by the firm providing other services. Second, ever since the accounting profession started,CPAs providing audit services have always done the corporations tax returns and other services. Why should it be any different now just because a few bad apples at the big five CPA firms have botched up their audits. Professional panels and studies have concluded that providing other non-attest services have not affected the quality of audits. Please do not put this rule into force. Thank You Andrew Tinklepaugh,CPA

Author: Brian Trunk at Internet Date: 09/12/2000 9:29 AM Normal TO: RULE-COMMENTS at 03SEC Subject: File No. S7-13-00 ------------------------------- Message Contents I am genuinely amazed that there is not already a regulation to prevent an auditor of a publicly traded corporation from doing any other sort of business with that corporation. The conflict of interests is too obvious. As in many situations that present a conflict of interests, actual wrongdoing could be most difficult to detect and harder still to prove. Audit of a publicly traded company is a public trust. A quasi-governmental act. Where the public trust is involved, conflicts of interest are generally illegal. They are illegal because they present such an opportunity for undetectable wrongdoing and because they have, ever present, the appearance of impropriety. There should be no such opportunity for wrongdoing that might need to be detected. No such appearance of impropriety should be allowed. It does not seem there would necessarily be a loss of legitimate revenues to auditors by such a regulation. If an auditor is prohibited from doing other services for a company it audits and a company is prohibited from hiring their auditor for other service, each auditor will have opportunity to compete to provide those other services to companies it does not audit. Not as cozy, I guess, but the appearance of impropriety would be gone. Brian D. Trunk 5702 42ND ST W TACOMA WA 98466

Author: Matthew Tulett at Internet Date: 09/12/2000 6:17 PM Normal TO: RULE-COMMENTS at 03SEC Subject: File No. S7-13-00 ------------------------------- Message Contents Hi, I am an individual investor, and as such this issue is of huge concern to me. The thought that a company might be buying services from their auditors as a means of getting the benefit of the doubt in the audit looms large. Whether this occurs or not I really do not care, what I do care about is that the opportunity for it to happen is removed. Financial institutions have to have a Chinese wall between departments that have a conflict of interests, so why not in this case? Thank you for your time Matt Matthew Tulett _____________________________________________________________ Quidnunc 118 East 25th Street 8th Floor New York NY 10010 Direct Dial +1 212 981 1929 Fax +1 212 981 1910

Author: "RAMAH L VIERA" at Internet Date: 09/12/2000 7:47 PM Normal TO: RULE-COMMENTS at 03SEC Subject: Re: File No. S7-13-00 ------------------------------- Message Contents > I would like to comment on the auditor/consultant issue. As one of 13,000 > investors in the now bankrupt Baptist Foundation of Arizona who relied on the > audit information provided by Arthur Andersen, I would like to see you come down > HARD on auditors who forget their ethical obligation in favor of padding their > own pockets. > > The BFA has a $640 million bankruptcy and only $240 million in assets. This is > a horrendous crime, orchestrated by a few of the top insiders at BFA and > supported by Arthur Andersen who had been auditing their books since 1987. THIS KIND OF CRIMINAL ACTIVITY MUST BE STOPPED. > > Thank you for the opportunity to "sound off." > > Ramah Viera >

Author: George Washco at Internet Date: 09/12/2000 5:19 PM Normal TO: RULE-COMMENTS at 03SEC Subject: auditors are consultants? ------------------------------- Message Contents > ref File No. S7-13-00 > > Seems self evident, auditors are not independent and > > therefore cannot perform fiduciary duties when their > > brethern are highly paid friends of management. > > As an investor, who ya gonna trust? > > SEC, you are right on the button with this one. > "sic'em" George Washco

Author: "Amy Angolano (Wiener; Goodman & Company; P.C.)" at Internet Date: 09/12/2000 1:11 PM Normal TO: RULE-COMMENTS at 03SEC TO: at Internet CC: at Internet CC: at Internet CC: at Internet Subject: File Number S7-13-00 ------------------------------- Message Contents September 12, 2000 Jonathan G. Katz, Secretary Securities and Exchange Commission 450 Fifth Street, N.W. Washington, DC 20549-0609 RE: File Number: S7-13-00 Dear Mr. Katz: I am writing to you as the CPA owner of an accounting firm that services SEC publicly held clients. I have read your proposal Governing Auditor Independence and have the following comments. * The Securities and Exchange commission appears to be in search of a problem with non-auditing functions that will require this proposal as the solution, although no problem is evident or facts present to support this proposal. The Securities and Exchange commission has admitted at they have no evidence that independence has been compromised by non-audit services, nor has audit quality been effected by non-audit services. There are no studies or reports that support this proposal as necessary or appropriate. * This proposal has the potential to have a far-reaching effect, which would be dangerous to the accounting profession. If this proposal were to be adopted, it would act as precedent leading to other regulators adopting the same standards to stay in line with the Securities and Exchange Commission. This would cause a wide reaching effect, causing accounting firms with or without SEC clients to be subject to these proposed rules of independence. * Under this proposed rule, an accounting firms audit clients would not be able to rely on their accounting firm to advocate for them or provide expert services in administrative proceedings before the IRS. Potentially this proposal would limit tax-related services to the preparation of tax returns. Page Two September 12, 2000 Jonathan G. Katz, Secretary Securities and Exchange Commission * The Panel on Audit Effectiveness of the Public Oversight Board, which was established at the request of the SEC has reviewed this proposal and has concluded that in numerous instances non-audit services has directly contributed to a more effective audit, and that there is no evidence to support that non-audit services have compromised audit quality. The Panel stated that "both the profession and the quality of audits are fundamentally sound". * Under this proposal, a CPA firm would need to be either solely the auditors for a publicly held company, or the non-auditors for a publicly held company. The client would be forced into choosing two firms, one to handle their audits and a second firm to handle their non-audit work, this has the potential of leading to regular changes in auditors as the client may chose to dismiss the auditors and rehire them in a non-audit capacity. * This proposal would make "affiliates of the accounting firm" more broad based, by viewing any entity in which the accounting firm has a commercially valuable business relationship an affiliate. * Accounting firms would effectively be precluded from almost any joint venture or partnership, as the relationship could compromise the independence of the accounting firm, although the investment made is immaterial and/or the association limited. * Restrictions regarding the association between accounting firms has the potential to result in each firm being independent of the other's clients. This restriction would also apply to international affiliations between accounting firms and other firms such as legal advisors. * In an attempt to rush this proposal through, the SEC has not allowed for adequate time to respond to this proposal, nor has the SEC given full consideration to the work being done by the ISB, whom the SEC set up to develop a new framework for auditor independence. * The SEC has tied the modification of the family disqualification rules, that are long overdue and should be expedited to this scope of services issue which requires more fact finding and analysis and should not be fast tracked but rather approached cautiously and with all the facts in hand. * This proposal will also have a negative effect on recruiting an hiring necessary professionals for accounting firms, as the scope of the opportunities within each firm would be limited. As recruitment and retention drop, there is the real possibility of a decline in audit quality. Professionals would be more drawn towards industries with broader career opportunities. Page Three September 12, 2000 Jonathan G. Katz, Secretary Securities and Exchange Commission * The SEC does not have the authority to make rules concerning the accounting profession itself, and the "appearance of independence", not independence of fact. The SEC lacks the authority to impose restrictions based on perceptions of independence. * The restriction of non-audit services would create firms that are reliant on audit fees, thus undermining the auditor's independence. * The accounting profession has been successfully giving reliable information to investors through independent data for the past century, the proposed restrictions would be a total restructuring of a profession that is working the way it was designed to. This proposal would interfere with a businesses ability to chose the services it wishes to offer and the ability of businesses to chose the company they would like to do business with and services they wish to utilize. I am opposed to this Proposed Rule Governing Auditor Independence, and would like to see it removed from consideration. I do support the modernization of the Family Disqualification Rules, and feel that this area should be fast tracked into policy. Respectfully yours, Joel Wiener Certified Public Accountant