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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: at Internet Date: 09/21/2000 10:20 AM Normal TO: RULE-COMMENTS at 03SEC Subject: FILE NO. S7-13-00 ------------------------------- Message Contents Dear Sir: I wish to comment on the proposed rules from the Securities and Exchange Commission regarding prohibiting non-audit services and audit services to be provided by the same firm. First of all, there are already safeguards in place to monitor this issue. All CPA firms which prepare any type of financial statements (audited or unaudited) are subject to an independent peer review every three years. This review includes specific procedures to determine any lack of independence that might exist between the auditor and its client. The American Institute of Certified Public Accountants (AICPA) as well as our own state society of CPA's (MSCPA) also provides technical assistance to help consult and resolve practitioner questions on independence issues. We comply with current independence rules regarding ownership, related party transactions, loans to or from clients, and any other applicable rules. Those alone create some problems which we are willing to accept. For example, we have had to refuse audit engagements of a condominium association because a professional staff member of our firm was a unit owner. We understand the reason for this and don't propose any changes. As a CPA in public practice, I object to the proposed rule which would severely limit the non-audit services which a CPA firm would perform for a client who is also an audit client. If this rule should be seen as a model for independence standards, other regulatory agencies, such as the state boards of accountancy, could adopt similar rules which would impact us all. If adopted, this proposal would significantly limit the services that, particularly those of us serving non-public clients are able to offer. If we were not able to provide non-audit services throughout the year, it would greatly reduce our income and have a negative effect on our firm. The knowledge of a company which is gained by performing other services for them can help a great deal in successfully planning and executing an audit. There are some very good items in the SEC's proposals such as the long-overdue modernization of family rules, which we support. However, these should not be tied to the controversial scope of services proposal. Thank you for considering my comments. Sincerely, Lester Adelstein, CPA


Author: "Mahoney Heineman & Co.; P.C." at Internet Date: 09/21/2000 3:18 PM Normal TO: RULE-COMMENTS at 03SEC Subject: S7-13-OO ------------------------------- Message Contents Securities and Exchange Commission 450 Fifth Street. N.W. Washington, D.C. 20549-0609 Dear Mr Katz, I am a CPA with twenty-five years experience. I am against your proposed rules regarding CPAs and "scope of services". I don't think it is necessary and I think it will end up hurting me financially. I do not do any SEC work, nor does the firm I work for. I do not think the rules are neccessary because insurance agencies will step in and set up rules for SEC practise CPA's in order for them to be insured. Why get the government involved? In addition, the AICPA has or will address many of your concerns. Why get the government involved?? Your federal regulation will trickle down to the state level where adoption of regulations will restrict my practise in ways you did not intend. It will hurt me financially. Why get the government involved??? I believe this is a rather complex area. More time should be taken in finding a solution. Please delay or permanently put off the proposed regulations. Sincerely, Richard H. Baker, CPA 915 East Wood Haven Drive Alexandria, IN 46001


Author: "Betty Bell" at Internet Date: 09/21/2000 11:47 AM Normal TO: RULE-COMMENTS at 03SEC Subject: File No. S7-13-00 ------------------------------- Message Contents Gentlemen: The proposed rule contains a provision limiting the scope of services CPA firms may render to their audit clients. I realize that these rules presently apply to public companies overseen by the SEC. I am concerned that in the future State Boards of Public Accountancy, banks, and other institutions subject to governmental oversight would follow the leader and adopt the SEC independence rules. My firm is small and performs auditing, tax, bookkeeping, management, and compilation and review services for small businesses, non-profits, individuals, and fiduciaries. To require different firms to provide these services would increase costs of these small clients. The standards overload has resulted in many of our small clients using the income tax method of accounting. They simply can not afford large accounting fees! Also, my firm is located a small town of approximately 20,000 population. There are just a few CPA firms to service the businesses. Your proposal, if applicable to small firms' clients, would force some businesses to use CPA firms at least 80 miles away. (Abilene, Texas is the largest city in our area of the State of Texas.) I urge you to reconsider this portion of the proposed rule. Mary E. Beniteau Bell, CPA Bell & Isbell, L.L.P. Brownwood, TX 76801


Author: "Bertsch; Ken" at Internet Date: 09/21/2000 3:19 PM Normal TO: RULE-COMMENTS at 03SEC Subject: S7-13-00 ------------------------------- Message Contents <> Enclosed is an HTML copy of TIAA-CREF's comment letter on the proposed Revision of the Commission's Auditor Independence Requirements, File No. S7-13-00. Please contact me if there are any problems with the file. Best wishes, Kenneth A. Bertsch kbertsch@tiaa-cref 212-916-4972


Author: "Bucki; William" at Internet Date: 09/21/2000 4:20 PM Normal TO: RULE-COMMENTS at 03SEC TO: CHAIRMANOFFICE at SEC1 TO: "'dick@durbin.senate.gov'" at Internet TO: "'Senator_Fitzgerald@fitzgerald.senate.gov'" at Internet CC: "'fedleg@aicpa.org'" at Internet Subject: CORRECTED SEC Reference file no. S7-13-00 ------------------------------- Message Contents > From: William E. Bucki CPA > 3235 - 186th Street > Lansing, IL 60438-3233 *corrected zip code suffix* > Phone: (708) 418-2044 > E-mail: william.bucki@switchboardmail.com > Re: SEC Reference file no. S7-13-00 > As an Illinois resident and licensed CPA, I strongly urge you to get the > SEC NOT to implement the proposal to restrict the services offered by > accounting firms. Reasons are outlined below: > * The SEC has based its decision to move forward with this rule > prohibiting non-audit services without facts or evidence. Even the SEC > admits that there is no empirical evidence that non-audit services have > compromised audit quality or auditor independence, nor ever caused an > audit failure. None of the studies or reports cited by the SEC concluded > that the scope of services impaired audit effectiveness, or that an > exclusionary ban was necessary or appropriate. The SEC's proposed rule is > a solution in search of a problem. > * The SEC ignored the conclusion of the current Panel on Audit > Effectiveness of the Public Oversight Board, a panel that was formed at > the request of the SEC. The panel concluded that, "both the profession and > the quality of audits are fundamentally sound." The panel said it could > find no evidence that the provision of non-audit services has hurt audit > quality. On the contrary, it concluded that in numerous instances > non-audit services contributed to a more effective audit. > * Most dangerous for the accounting profession is the likely prospect > that the proposed rule would set a precedent for other regulators. Even > accounting firms that do not audit SEC registrants could be impacted by > these new rules. The proposed SEC rule would be viewed as the new model by > state boards of accountancy, as well as federal (e.g., banking and ERISA) > and other regulators. These new proposed SEC rules could influence the > regulatory approach to auditor independence outside the United States as > well. > * The SEC proposal is bad news for CPAs working in industry, since it > would restrict public companies' freedom of choice when seeking outside > professional services. The SEC would force public companies to constantly > choose whether to hire a firm solely as its auditor or solely as a > provider of other services. In fact, under the proposed new rules, a > public company might be compelled to dismiss an audit firm that has done > consistently outstanding work in order to obtain services from the > auditor's non-audit colleagues. > * The SEC claims its proposed rule "would not affect tax-related > services" to audit clients. However, it would ban acting as an advocate > for an audit client, or providing expert services in administrative > proceedings, thus (except in preparing returns) potentially prohibiting > CPAs from representing audit clients before the IRS. > * The proposed rule would impute to an accounting firm the activities > of virtually any entity with which the accounting firm has a commercially > valuable business relationship by viewing such an entity as an "affiliate > of the accounting firm." > * Accounting firms effectively would be precluded from entering into > almost any joint venture or partnership, since the accounting firm's > independence could be impaired as a result of the activities of other > parties in which it may have only an immaterial investment, or with which > it may be associated in only limited respects, but does not control. > * Regional alliances or cooperative agreements between accounting > firms could result in each firm being required to be independent of each > other firm's attest clients. Moreover, the restrictions would extend to > any alliance or cooperative agreement with overseas accounting and other > firms (such as legal service providers). > * In a rush to regulate, the SEC has: > * Adopted a schedule designed to avoid Congressional oversight and > preclude meaningful public participation. > * Waited until the eleventh hour of the Clinton Administration to push > through a radical rule to restructure the accounting profession, without > permitting informed oversight, or policy participation, by Congress or the > new Administration. In each of the last 10 annual reports to Congress, the > SEC has not mentioned any concerns about the scope of services issue. > * Limited to 75 days the period for commenting on a far-reaching and > highly complex proposal, including responding to more than 400 questions, > collecting and analyzing a great deal of data and considering alternative > concepts for regulating auditor independence. > * Pre-empted the work of the ISB, set up three years ago at the > initiative of the SEC to develop a new conceptual framework for auditor > independence and appropriate implementing standards. > * Not allowed time for important recent reforms to work, including new > disclosure and audit committee requirements adopted by the ISB, the NYSE, > the NASD, the American Stock Exchange and the SEC. > * The SEC has needlessly tied its popular and long-overdue > modernization of family disqualification rules-depression-era rules that > discriminate against working women and two-career families-to its far more > controversial scope of services initiative. Modernization of the > financial-interest standards can and should occur on an expedited basis, > independent of the scope of services initiative. The scope of services > initiative requires more time for fact finding and analysis than provided > by the SEC's time frame. > * If the rule is adopted, there will be a negative effect on > recruiting and retention of the best talent. The best audit professionals > will not want to be at a firm where 25% - 40% of the market is > "off-limits," and the same is true for the best non-audit professionals. > Similarly, the best and brightest students will not be drawn to firms with > a limit on upward opportunities. The "audit-only" firms endorsed by the > proposal will have difficulty attracting the necessary talent both from > accounting programs and from information technology programs, because the > best talent will be drawn toward industries with broader career > opportunities. > * The SEC lacks authority for its sweeping scope of services rule. The > statutory provisions cited by the SEC in the proposed rule pertain to > public companies' filing of financial statements that have been audited by > independent accountants and do not expressly authorize the SEC to make > rules governing or regulating directly the accounting profession itself. > The proposed rule is based primarily, if not entirely, on alleged concerns > relating to the "appearance of independence" - but not independence in > fact. The SEC does not have statutory authority to impose restrictions > because of possible perceptions about independence. > * Broad restrictions on non-audit services will likely have the > perverse effect of undermining auditor independence by making audit firms > overly or exclusively dependent on auditing fees, which would certainly be > contrary to the public interest. Such restrictions will also harm the > recruitment and retention of the most qualified personnel, causing a > possible degradation in audit quality. > * In conclusion, the SEC's proposal to restrict the services offered > by accounting firms represents a fundamental restructuring of a profession > that has successfully given investors the reliable, independent data they > need for the past century. A decision by a government agency to tell some > business organizations what services they may offer and to tell other > businesses from whom they can buy services is an extraordinary economic > intervention without any empirical or other basis. We think most Americans > would find this a curious public policy position for their government to > take. > * This scope of services rule must not be allowed to go forward. > >


Author: "Tiffany Chapa" at Internet Date: 09/21/2000 3:25 PM Normal TO: RULE-COMMENTS at 03SEC Subject: File No. 57-13-00 will cripple the accounting profession ------------------------------- Message Contents On behalf of the Burdette Smith Group, CPAs, I am writing to oppose the rule revising the Auditor Independence Requirements of the Securities and Exchange Commission (the SEC). We feel that the proposed rule is unnecessary and will harm our firm as well as the accounting profession as a whole for the reasons outlined below. We believe that providing a full scope of services does not compromise auditor independence, and therefore does not cause compelling public harm. The SEC decision to regulate the non-audit services of accounting firms is not based on proven facts. The SEC has produced no empirical evidence that the non-audit services have compromised audit quality or auditor independence nor ever caused an audit failure. None of the studies cited by the SEC has shown conclusively that the scope of services impaired audit effectiveness. Therefore an exclusionary ban is unnecessary. Further, the Panel on Audit Effectiveness of the Public Oversight Board, which was formed at the request of the SEC, recently concluded, "both the profession and the quality of audits are fundamentally sound." The panel also stated that it could find no evidence supporting the theory that the provision of non-audit services has hurt audit quality. Instead the panel concluded that in numerous instances non-audit services have contributed to a more effective audit. There is no evidence of the investing public being harmed by the lack of restrictions on non-audit services. These proposed restrictions will likely harm investors in that auditor independence will be undermined in two critical ways: (1) auditors will be overly dependent on audit fees because of restrictions on other activities; and (2) restrictions on non-audit activities will make it more difficult for CPA firms to hire and retain the most qualified personnel, causing a degradation in audit quality. The proposed rule does not address a compelling public harm and, in fact, may create conditions of impaired auditor independence that the rulemaking was designed to prevent. Also, we object to the fact that despite the lack of evidence of non-audit activities endangering auditor independence the SEC has: -Adopted a schedule designed to preclude meaningful public participation and to avoid congressional oversight. -Limited to 75 days the period for public comment on a far-reaching and highly complex proposal, including responding to more than 400 questions, collecting and analyzing a great deal of data and considering alternative concepts for regulating auditor independence. -Waited until the final months of the Clinton Administration to propose a radical rule to restrict the services of the accounting profession without permitting informed oversight by Congress. -Pre-empted the work of the Independence Standards Board set up three years ago by the SEC to develop a new conceptual framework for auditor independence and appropriate implementing standards. -Refused to allow important recent reforms to work including new disclosure and audit committee requirements adopted by the New York Stock Exchange, the National Association of Securities Dealers, the American Stock Exchange, and the SEC. Such far-reaching change to the accounting profession deserves time for public participation and appropriate comment. Our biggest concern is that the proposed SEC rulemaking will ripple throughout the country impacting virtually every accounting firm. There is a very strong likelihood that the proposed rules will set a precedent for other regulators. The proposed rulemaking would be viewed as a model by state boards of accountancy, as well as federal (e.g. banking, IRS, and ERISA) and other regulators. The SEC's proposed rulemaking creates an adverse precedent by restricting competition and the freedom of choice available to public companies. The SEC proposal would reduce the options a public company could select when seeking outside professional services. Despite a lack of evidence that such services impact independence a public company could be forced to accept lesser quality work in order to retain an accounting firm for a given type of service. Auditors who perform consulting services for their clients are able to provide the highest quality of service in an efficient manner. Finally, we believe that the SEC lacks authority for its sweeping scope of services rule. The statutory authority cited by the SEC pertains to the filing of financial statements that have been audited by independent public accounts and does not expressly authorize the SEC to make rules directly regulating the accounting profession itself. The proposed rule is designed to address alleged concerns relating to the "appearance of independence" - but not independence in fact. The perceptions of the SEC that auditor independence has been impaired do not create the statutory authority to impose a sweeping change in the nature of services provided by accounting firms. To conclude, we think that the SEC's proposed rulemaking to restrict the services offered by accounting firms is fundamentally flawed. Such a sweeping change to a profession that has demonstrated a commitment to the public interest without adequate time for debate and consideration by both impacted parties and the Congress should be withdrawn. Sincerely yours, Tiffany Chapa Staff Accountant, The Burdette Smith Group


Author: at Internet Date: 09/21/2000 10:34 AM Normal TO: RULE-COMMENTS at 03SEC Subject: Reference File No. S7-13-00 ------------------------------- Message Contents JAMES E. COLLIER, CPA 37 Morningside Ct. New Whiteland, IN 46184 (317) 535-9019 September 21, 2000 Sent via E-mail to: rule-comments @sec.gov Jonathan G. Katz, Secretary Securities and Exchange Commission 450 Fifth Street, N. W. Washington, D. C. 20549-0609 SUBJECT: Reference File No: S7-13-00 Mr. Katz: I am a CPA, licensed to practice in Indiana. I am writing in response to the Revision of the Commission's Auditor Independence Requirements. I provide audit services to non-publicly traded clients. As I understand it, the above mentioned proposal would prohibit me from performing most non-audit services to those clients. I oppose this scope of services proposal. The decision to move forward with the scope of services rule was made without facts or evidence. As I understand it, the SEC has admitted that there is no direct, observed evidential matter to support the assertion that audit quality or auditor independence has been compromised. Nor has any empirical evidence been presented to support the notion that an audit failure was caused by the ability to provide non-audit services to audit clients. In my case, providing such services has contributed to a greater understanding of the client, resulting in a more effective audit. While I do not audit SEC clients, the proposed scope of services rule would most likely set a precedent for other regulators. The proposed rule, as always, would be viewed as the new model by state boards of accountancy, as well as other federal regulators. I have no objection to the modernization of family disqualification rules. I feel that they were needlessly tied to the scope of services proposal. Sincerely, James E. Collier, CPA


Author: "Sharise Engel" at Internet Date: 09/21/2000 12:36 PM Normal TO: RULE-COMMENTS at 03SEC Subject: Comments regarding CPA and SEC work ------------------------------- Message Contents September 21, 2000 RE: Reference file No.: S7-13-00 Dear Sir or Madam: This letter is to address the proposed regulation which would prohibit audit clients from performing non-audit services. I am an inactive Nebraska and Florida CPA working in industry. I believe that improvement is needed within the CPA profession, but I do not see where limiting the client's ability to receive business growth assistance from their CPA firm will achieve that goal. Rather than drawing up detailed new rules for a rapidly changing future, we should first get the basics right. The value added services by CPA's have seemed to improve the quality received from our CPA firm. I believe that lowering the overall pool of talent in the CPA firm may limit the quality of business services given. The industry does not understand why the SEC is concerned in limiting their choices of services provided. I urge you to reconsider this rule proposal, to extend the comment period on the rule proposal, and to inform yourselves about the real impact of your rule proposal on accountants and their clients all across this country. Many accountants do not have large SEC practices and could be severely hurt by this proposed regulation. I believe the CPA profession takes the existing independence rules quite seriously and consequently abide by all existing rules. We are professionals that follow our code of ethics and practice by the highest moral values. A CPA with the ethics and professional integrity to practice would not be influenced by their own personal financial well being versus their professional ethics. Through its Quality Control Inquiry Committee, the AICPA is committed to a self-regulatory program that focuses on protecting the public interest in reliable financial information and enhancing the credibility of financial reporting through the audit. Without question our self-regulatory system has been an integral part of the best and strongest financial reporting system in the world. The profession understands that the public's trust is hard-earned and easily lost. Please stop this rule proposal. Thank you for your time and attention to this matter. Sincerely yours, Sharise M. Engel Tax Manager


Author: "Keith Ferguson" at Internet Date: 09/21/2000 8:44 AM Normal TO: RULE-COMMENTS at 03SEC TO: at Internet Subject: Reference file No.: S7-13-00 ------------------------------- Message Contents Reference file No.: S7-13-00 To whom it may concern, I'm writing in protest to the proposed SEC rule prohibiting non-audit services to CPA firm's attest clients. My firm serves smaller SEC registrants that require a great deal of attention and support to comply with SEC reporting rules. The rule proposed by the SEC will effectively eliminate our ability to provide this service, which benefits the SEC, the client and the investing public. The SEC has proposed these new rules with no known evidence to support its presumption that the prohibited services compromise independence. This proposal also makes it likely that even the largest audit firms will not be able to retain the specialist non-CPA experts that are necessary in today's technology driven environment to perform quality audits of large and small enterprises. Small registrants cannot afford to hire the expertise necessary to comply with the many regulations promulgated by the SEC and other regulators. They rely on their CPA firms to perform not only the audit function but also advise them on the many systems, controls and policies they must follow in order to be successful in business and comply with the regulations. The SEC proposal restricts public companies' freedom of choice when seeking outside professional services. It will be next to impossible for these enterprises to segregate their single CPA firm relationship into multiple relationships in order to comply with the new independence rules. CPA's will refuse to provide audit services or require excessive fee increases due to the inefficiencies imposed by these regulations. Most CPA firms below the Big Five in sizes will stop serving SEC registrants, further restricting the access of smaller companies to reasonably priced audit services. In the attempt to produce theoretical purity the result will be reduced quality of audits, limited access to auditing services and hurt the investing public that the SEC is supposed to protect. Sincerely, Keith Ferguson Keith Ferguson, CISA Moss Adams LLP (509) 777-0126 1-800-888-4065


Author: "Johnson; Craig" at Internet Date: 09/21/2000 8:12 AM Normal TO: RULE-COMMENTS at 03SEC Subject: File #S7-13-00 ------------------------------- Message Contents I would like to express my deep concern regarding the proposed rule changes initiated by the Securities and Exchange Commission (SEC). If the rule is approved as currently proposed, accounting firms performing audits for SEC registrants, and perhaps non-public clients, might ultimately be prohibited from providing any audit client with most non-audit services. This restructuring of the accounting profession would seriously impair our firms ability to perform services to our current clients, and will severely limit our future clients. I feel this proposal has far reaching implications, with profound consequences for the future of the accounting profession and would adversely affect all accounting firms and companies, public and private. The SEC has decided to move forward with this proposal without any evidence or facts that non-audit services have compromised audit quality or auditor independence, nor ever caused an audit failure. The Panel on Audit Effectiveness of the Public Oversight Board, formed at the request of the SEC, concluded that both the profession and the quality of audits are fundamentally sound. The panel could find no evidence of non-audit services hurting audit quality. The panel in fact concluded that in most cases, non-audit services contributed to a more effective audit. Placing these restrictions on audit clients and CPAs could have an adverse effect on the quality of an audit. For CPAs working in industry, this is not good news because it would restrict public companies' freedom of choice when seeking outside professional services. This proposal would force public companies to choose a firm solely for its auditing abilities or as a provider of other services. Also, public companies would be compelled to dismiss an audit firm that has done consistently outstanding work in order to obtain services from the auditor's non-audit colleagues. Even though the proposal "would not affect tax-related services" to audit clients, it would ban acting as an advocate for an audit client, or providing expert services in administrative proceedings, thus potentially prohibiting CPAs from representing audit clients before the IRS. The most dangerous aspect of this proposal is this rule would set a precedent for other regulators to follow. This new rule would be the model on state boards of accountancy as well as federal (e.g., banking and ERISA) and other regulators. This could also influence the regulatory approach to auditor independence outside the United States. There would be a negative effect on recruiting and retaining top professionals. The best and brightest students will not be drawn to a firm with limited opportunities. This fact alone will seriously impair the growth of the overall accounting profession. Students realizing the limitations could possibly seek other industries with broader career opportunities. Ahlbeck & Company, a well-established accounting firm continues to broaden our client base in the Chicago area and beyond as we focus on responding to the needs of our clients. Our clients vary in size from sole entrepreneurs to large corporations, and our industry base ranges from non-profits and tax-exempt organizations to wholesalers, retailers and professional service firms. This proposal would seriously handicap the services we currently offer our clients, and in effect, would do considerable damage to our current client base. We pride ourselves on the variety of services we offer our clients and we are dedicated to provide exceptional personalized client service in response to their individual needs. We have dedicated a great deal of time and effort in attracting and retaining top employees in the accounting field. This proposal would cause some of our best employees to seek employment elsewhere if they are restricted in services we provide. Thank you for the opportunity to share my concerns. Very truly yours, * Craig * * * AHLBECK & COMPANY * * CERTIFIED 1665 ELK BOULEVARD TEL: 847/824-4000 * PUBLIC DES PLAINES, ILLINOIS EXT: 24 * ACCOUNTANTS 60016-4798 FAX: 847/824-4012 * * E-MAIL: WEB: * craig@ahlbeckco.com www.ahlbeckco.com * * CRAIG D. JOHNSON *


Author: Pat Kilwein at Internet Date: 09/21/2000 5:18 PM Normal TO: RULE-COMMENTS at 03SEC CC: "'fedleg@aicpa.org'" at Internet Subject: Reference File No. S7-13-00 ------------------------------- Message Contents I am writing in response to Proposed Federal Regulation governing auditor independence. I am the audit manager for a local CPA firm Coradino Hickey and Hanson, A CPA Corporation, consisting of approximately twelve CPA's. Our practice and our clients interests would be impacted negatively if the proposed rule governing audit independence were to be enacted. In our role as business advisors to our clients, we perform audit services but also provide a whole realm of related accounting services. If we were to be restricted to only providing audit services, which would then preclude us from performing other accounting related professional services, our practice as it currently exists would not be able to continue. This would negatively impact my personal career as an audit manager who also provides a wide range of professional services, and my clients who currently benefit from my ability to provide them with audit services as well as business advisory services would also suffer. As a member of a small firm ( or a large local firm depending on how you look at it) who services non-public entities which are business that are closely-held and tend to be small to medium sized businesses with revenues typically from $1 Million to as much as $200 Million, my ability to serve these clients would be severely limited under the proposed regulations. In turn, the businesses which I perform audit and business advisory services would also be impacted negatively, since I could no longer provide them with the services they seek and need in order to stay in business operating profitably and efficiently, and be able to compete with other businesses. Even though the regulations are proposed to only apply to SEC registrants, its impact on the CPA profession and the public opinion would definitely impact me and my firm. The limitation on performing non-audit services to clients and the perceptions about independence would truly have a negative impact to me, my firm, my clients, and in general the public. Therefore, please recognize that I urge you to not adopt the proposed rule governing Auditor Independence. Thank you for your attention to this very important matter. CORADINO HICKEY AND HANSON, A CPA CORPORATION PATRICK A. KILWEIN, CPA


Author: at Internet Date: 09/21/2000 9:18 AM Normal TO: RULE-COMMENTS at 03SEC Subject: REF file no. S7-13-00 ------------------------------- Message Contents As a practicing CPA, for over 30 years, I am generally not prone to write comments to governing bodies. I have been active, however, in the Indiana CPA society and briefly in the AICPA. I believe that the limitation of scope of business services, contemplated by your committee is well beyond the responsibilities assigned to the SEC when given the charge to oversee "public firm financial reporting." It is not in your best interests to pursue this limiting of scope of service, nor is it in the best interest of my colleages. Thank you for this consideration. Richard K. Leighton


Author: at Internet Date: 09/21/2000 8:17 PM Normal TO: RULE-COMMENTS at 03SEC CC: fedleg@aicpa.org at Internet Subject: file no. S7-13-00 ------------------------------- Message Contents To Whom It May Concern: This letter is in response to the recent proposed ruling regarding audit independence. Comment Period First let me say that the impact of this ruling would be widespread with major implications. Because of this, the comment period is too short and should be extended before making a final ruling. Be Realistic and Be Careful What You Create You are probably reading hundreds of letters covering agreed upon points to discuss-- all of which are valid. But I want to cut to the chase and relay my thoughts on this matter based on my personal experience from operating in the real world in which we as accountants must practice. I have worked on SEC clients while a manager with a big five firm and now as a partner in a smaller firm environment. I can tell you without exception that the more services we provide for a client the better we understand their operations, reporting process and risks. (For example: While with my previous firm, we performed the audit for a $1billion multi industry company. I have never felt more comfortable with an audit opinion then the year we also performed the clients internal audit function one year. You are telling me this is an independence impairment when I am telling you without a doubt that as a financial statement user, you can feel better about the quality of the statements that year then any other year) Be realistic-the more we are in a clients operations the more likely we are to detect reporting issues. I know as a practitioner when a service may be crossing the independence line and we will always seek guidance from the AICPA and/or SEC in those circumstances. But 99 out of 100 times the service we provide will compliment and improve our audit. If you force clients to use multiple accounting firms to accomplish their reporting and internal control goals, you are creating a dangerous situation. Make no mistake about it; if management now has multiple firms with intimate knowledge of their business, they will quickly use this to their advantage pitting firms against each other. This will make it easy for management to shop opinions and audit fees and entice accounting firms to use audit issues to convince management to switch firms which will result in a steady decline in the integrity of financial reporting With audit fees already low and being pushed lower for the reasons discussed in the previous paragraph, the better firms will abandon the audit practice to pursue more profitable practice lines with no restrictive regulatory issues. What will be left to issue SEC audits will be low-cost bottom feeders that lack the ability and desire to issue quality financial information. If you don't believe it, look no further then HUD to see what happens when the profitability is taken out of the industry for accounting firms. Conclusion I agree that there are firms--particularly larger firms-- that are pushing the envelope on independence. I also believe this is the exception rather then a normal practice. But making a blanket ruling to prevent a few questionable situations is an overreaction that would be more detrimental than good to SEC filers and their accountants. More importantly, I believe the integrity of the profession would be challenged resulting in a serious decrease in the quality and consistency in financial reporting. The answer is stricter enforcement against firms violating independence rules and more guidance and regulations regarding what is and is not permissible. Thank you for your consideration. P. Jason Ricciardi Maggart & Associates, P.C. 150 4th Avenue North Suite 2150 Nashville, TN 37219


Author: Seth Richard at Internet Date: 09/21/2000 12:30 PM Normal TO: RULE-COMMENTS at 03SEC Subject: File No. S7-13-00 ------------------------------- Message Contents I am submitting my comments as a personal, private investor in several stocks and mutual funds. There is no doubt in my mind that accounting and auditing services must be kept entirely separate to maintain the integrity of audits. There exists an inherent and profound conflict of interest in an auditor also acting as a consultant in any way to the entity he is auditing. It is therefore not reasonable or realistic to allow such a relationship and expect imartial results. Auditing and consulting must not be allowed to come from the same source. Seth Richard Boston, MA


Author: "Roesener; Derek" at Internet Date: 09/21/2000 10:48 AM Normal Receipt Requested TO: RULE-COMMENTS at 03SEC Subject: File Number S7-13-00 ------------------------------- Message Contents Messrs. Arthur Levitt, Paul R. Casey, Isaac C. Hunt Jr. and Ms. Laura S. Unger: I am writing to express my strong disagreement with the proposal to limit the provision of non-audit services by the independent audit firm. I strongly believe that adoption of such an extreme rule is both unwarranted and overreaching and would also cause severe disruption to the entire business community if adopted. First, I understand the concern that the SEC has with regard to ensuring that the provision of non-audit services does not interfere with or impact the independence of the audit function. Preserving the independence of the audit function is necessary to protect the integrity of a company's financial statements. Contrary to your claims that the proposed rules would not severely restrict accounting firms from providing non-audit services to audit clients, the proposed rules would have such an effect. I believe that implementation of the proposed rules is both unwarranted and far overreaching. First, I am not aware of any objective studies or evidence to suggest that provision of non-audit services by accounting firms to non-audit clients has caused any impairment of independence in audits. The suggestion that the provision of certain types of services necessarily impairs the actual or perceived independence of the audit firm is wholly without merit. Audit firms take their responsibility to provide an independent audit opinion very seriously and fully recognise the potential risks of failing to do so. Furthermore, the fact that the enforcement division has never brought forward a case alleging such an audit failure is also inconsistent with the stated purpose for the rules. In absence of any such objective evidence to support the purpose for the proposed rules, how can the SEC objectively determine how to 'correct' the 'problem' without going too far? The role and function of the audit committee of the Board of Directors of SEC companies is to engage and direct the activities of the audit firm. Audit Committees routinely request detailed information on the types of services provided by and amounts of fees paid to the audit firm. If the Audit Committee perceives that the independence of the audit firm is impaired for any reason, it is their duty to the shareholders to ensure that the impairment is corrected or engage another audit firm. To impose a blanket rule prohibiting the provision of certain types of services by audit firms negates the ability of the audit committee to perform its duties. To restrict a company from engaging the firm that is best able to provide the necessary services will most certainly adversely affect its business operations. In today's fast-moving global business environment, companies need the best available resources at their disposal to succeed. Why should a company be arbitrarily restricted from engaging a firm that has the most knowledge of its global operations from providing non-audit services? Certainly the 'cost' of such a restriction to all SEC companies would greatly exceed the 'benefit' of a perceived increase in auditor independence, if any. Has such a cost/benefit analysis been completed or even comtemplated to support these proposed rules? The impact of these rules on the accounting profession and ultimately to the economy would be devastating. Implementation of these rules will force individual CPAs and accounting firms to choose to be a strict 'auditor' or a value-added business advisor. Such a split will most certainly result in the 'dumbing-down' of the auditor due to lack of other business advising experience which enhances their audit ability. Finally, I would like to propose a few questions, the answers to which should also highlight the lack of clear purpose and the impossibility to implement and police the proposed rules. 1. Why restrict an accounting firm from providing only certain types of non-audit services to audit clients and not restrict the amount of non-audit fees an accounting firm can receive from audit clients? While I am not proposing such a rule, certainly logic would dictate that it would be the amount of non-audit revenue received from an audit client rather than the specific services generating that revenue that could impair the independence of the auditor. 2. Does any other regulatory body in the world have such a rule? I am not aware of any. 3. Do the proposed rules apply to the provision of non-audit services by the audit firm outside the U.S.? If so, then forcing a company to build relationships with multiple firms in every country in which it operates is unduly burdensome and impossible to police. 4. Who has ultimatee authority at a company to decide which firm to engage for which services - the Audit Committee or the managers of the company? If the Audit Committee chooses Firm A as the audit firm, can the managers be restricted from engaging Firm A in non-audit services? If so, is that in the best interest of the company and its shareholders? If the managers of the firm engage Firm B for non-audit services, is the Audit Committee then restricted from considering Firm B as the audit firm? Is that lack of choice in the best interest of the shareholders??? In conclusion, I think that without any credible or objective evidence to suggest that any actual impairments of audits have resulted from the provision of certain types of non-audit services, the proposed rules are wholly without merit or benefit. I appreciate your consideration of these comments. Sincerely, Derek B. Roesener, CPA Delco Remy International Derek B. Roesener Manager, International Tax 765-778-6674


Author: at Internet Date: 09/21/2000 2:37 PM Normal TO: RULE-COMMENTS at 03SEC Subject: Reference File No. S7-13-00, Proposed Rule Governing Audit I ------------------------------- Message Contents The SEC is currently proposing a scope of services rule that would severely and unnecessarily restrict public accounting firms. The proposed rule says that if a firm performs an audit for a public company, it cannot perform any non-audit services for that company. Those non-audit services include the tax, information and management consulting which virtually all public accounting firms currently perform for its clients. While my practice currently consists of only closely held businesses and we do no audits, I am concerned about the trickle down effect of this proposed rule. A precedent could very well be set for other regulators who do impact my business. A number of points need to be considered by the SEC: The SEC admits that there is no empirical evidence that non-audit services have compromised audit quality or audit independence. The SEC has ignored the conclusion of the Panel on Audit Effectiveness of the Public Oversight Board, a panel formed at the request of the SEC. The panel said that the public accounting profession and the quality of its audits were fundamentally sound. It also concluded that in numerous instances non-audit services actually contributed to a more effective audit. The proposed rule could actually hurt audit quality by depriving the audit firm of vital technological expertise and a potentially rich source of information about the client. Recruiting and retaining the best talent will become difficult for public accounting firms. The "audit only" firms endorsed by the proposal will have difficulty attracting the necessary talent both from accounting programs and from information technology programs, because the best talent will be drawn toward industries with broader career opportunities. That would certainly have a negative effect on audit quality. Making audit firms overly or exclusively dependent on auditing fees could actually undermine auditor independence. That would certainly be contrary to the public interest. The SEC's proposal to restrict the services offered by accounting firms represents unnecessary government intervention. Government agencies should not be telling some business organizations what services they may offer, while telling other businesses with whom they may do business. The SEC lacks the authority for the scope of services rule. The statutory provisions cited in the proposed rule pertain to public companies' filing of financial statements that have been audited by independent accountants and do not expressly authorize the SEC to make rules governing or regulating directly the accounting profession itself, but rather pertain to the requirements for public companies' financial statements. Sections of the federal securities laws that permit the SEC to define "accounting, technical and trade" terms also do not grant such authority. It appears that the SEC is trying to rush through this regulation. The following points illustrate this: The schedule seems designed to avoid Congressional oversight and preclude meaningful public participation. The SEC has not mentioned any concerns about the scope of services issue in each of the last 10 annual reports to Congress, yet in the eleventh hour of the Clinton Administration, they are attempting to push through a radical rule to restructure the accounting profession. Limited the comment period to 75 days for a very complex and far-reaching proposal. The accounting profession has successfully given investors the reliable, independent data they need for the past century. This is a classic example of "If it isn't broke, don't fix it". This scope of services rule must not be allowed to go forward. Very truly yours, TEMCHUK & COMPANY, LTD. Martin A. Temchuk, C.P.A.


http://www.sec.gov/rules/proposed/s71300/0921b01.htm


Modified:09/22/2000