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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: "Sherry Barth" at Internet Date: 09/22/2000 12:44 PM Normal TO: RULE-COMMENTS at 03SEC Subject: File No. S7-13-00 ------------------------------- Message Contents The proposal, if approved, would prohibit the CPA firms that perform the financial statements from providing internal audit services to that firm. I feel this is a good first step toward restoring public confidence in external auditors and their independence. Sherry G. Barth Director of Internal Audit Connecticut State University System 39 Woodland Street Hartford, CT 06105 barths@sysoff.ctstateu.edu Phone: (860) 493-0173 Fax: (860) 493-0006


Author: "Rick Betts" at Internet Date: 09/22/2000 7:37 AM Normal TO: RULE-COMMENTS at 03SEC Subject: Reference file No.: S7-13-00 ------------------------------- Message Contents Comments on proposed SEC rule prohibiting non-audit services to CPA firms' attest clients I'm writing to protest the proposed SEC rule prohibiting non-audit services to CPA firms' attest clients. Our firm serves regulated utility companies that require considerable regulatory, consulting, and compliance work above and beyond the audit function. The rule proposed by the SEC will effectively eliminate our ability to provide these services to our clients. I agree CPA's would be more independent if the proposed SEC rule is enacted, but not by much. Please consider: The attest fees will still be significant to CPA's and that is the fatal threat to independence. This proposed rule will reduce fees earned from attest clients, but the fee issue will still be the fundamental tension that causes CPA firm's to compromise their integrity because of a financial tie to a client. Other existing rules prohibit involvement with client transactions. These rules are sufficient enough to do the job in the vast majority of situations. CPA's do a good job of drawing the line between consulting and attest engagements. Although the situation is not perfect, CPA's armed with ethics training and existing rules are able to do both. The quality of services aimed at helping businesses to be more financially successful will be dramatically reduced. This negative by product of the SEC proposed rule greatly outweighs any benefit from improved independence. Please consider. This rule affects the entire accounting profession. In effect it prevents auditors from doing anything else. It is completely impractical to believe that auditors will audit one set of clients and provide consulting to a different set of clients. It will result in a CPA being 100% either an auditor or a consultant. The inability of auditors to provide even casual consulting will result in a serious loss of job satisfaction that will drive CPA's (especially the good ones) out of auditing and ultimately away from the CPA credential. The costs of audits will increase and the skills of auditor CPA's will decline resulting in poorer quality audits. o The practical result of this rule will be to take away much of the activity that auditors enjoy. The result will be a diversion of talent away from auditing to other fields of accounting or other professions. Another rule by Congress caused the vast majority of American businesses to adopt a December 31st as their fiscal year end. Therefore, most audit work is performed in the January through March timeframe (in my case 100% of my audit work is during those months). This rule has made it difficult for auditors to stay productive the other 9 months of the year. Preventing those auditors from doing other work for their clients makes an already bad situation a full-blown disaster. Does the SEC really think that these auditors will simply find other non-attest clients to perform consulting work? Obviously it will be difficult to find these clients and even when opportunities arise how skilled will the auditors be with this barrier to developing consulting expertise? A great amount of consulting work prohibited by the proposed rule is an attempt by the CPA's to solve problems and seize opportunities that come to light during the audit. How strong is the incentive for auditors to help their clients in these areas if the benefit goes to another firm and if that other firm is a competitor? Answer - not much incentive. What are the larger implications if auditors don't use their business knowledge to consult with their clients? Answer - businesses will suffer. How does the SEC really intend to define the prohibited services? This distinction will be very difficult to make which will undermine the workability of the rule. For example, when is bookkeeping a part of the audit and when is it a consulting engagement? Is it prohibited bookkeeping if: o An auditor prepares workpapers that reconciles an account o The same workpaper is prepared to help the client prepare for the audit o The same workpaper is prepared during interim procedures and the client makes a journal entry to correct an item Our clients, their bankers and owners don't care about drawing a line between attest, tax, and consulting services. They just want accurate financial records and help with their financial systems by the professionals that understand them the best. CPA's do this, our clients appreciate it and we don't need a rule to regulate a problem that is a rarity. We charge for these services, so we have to walk a difficult line with independence. A rule isn't going to take that inherent issue away. This rule will greatly damage the CPA business model and will be viewed by the business community as a horrendous error. Don't pass a this new rule; just spend more effort on enforcing the existing rules. Rick Betts Moss Adams - Spokane rickb@mossadams.com Direct line: (509) 777-0187 Fax: (509) 624-5129 Cell phone: (509) 994-8386 Email to pager (limit 150 characters): 5099948386@mobile.att.net


Author: Amy Bokenkamp at Internet Date: 09/22/2000 1:33 PM Normal TO: RULE-COMMENTS at 03SEC Subject: File No. S7-13-00, Testimony ------------------------------- Message Contents This proposed rule regarding CPA independence, which would prohibit CPA firms from providing non-audit services to their audit clients, should be implemented. I strongly believe that it would be difficult, if not impossible, for an accountant to maintain independence and objectivity when providing both management advisory services and auditing services to his or her audit clients. I applaud the SEC for taking these steps to protect investors. _________________________________ Amy Bokenkamp, CIA Internal Auditor UAB Health System Internal Audit Phone: (205) 934-4101 Fax: (205) 975-7019 E-Mail: bokenkam@uab.edu


Mailing address: MT 647 1530 3RD AVE S BIRMIAuthor: "Alfred S. Chavez" at Internet Date: 09/22/2000 1:11 PM Normal TO: RULE-COMMENTS at 03SEC Subject: In support of Independence changes ------------------------------- Message Contents This is to write in support of the SEC rules changes that would prohibit CPA firms from providing outsourced internal audit services (an oxymoron if there ever was one) to institutions for whom they are simultaneously the independent auditors. Thank you. Alfred S. Chavez Jr. CPA Director of Internal Audit University System of Maryland 3300 Metzerott Road Adelphi, MD. 20783 achavez@usmd.edu NGHAM AL 35294-4410


Author: "Daniel F. Clifford" at Internet Date: 09/22/2000 2:09 PM Normal TO: RULE-COMMENTS at 03SEC Subject: Proposed audit rules ------------------------------- Message Contents Please see attached letter <> In case you can't open word file letter is reproduced below September 22, 2000 Jonathan G. Katz, Secretary Securities and Exchange Commission 450 Fifth Street, NW Washington, DC 20549-0609 Dear Mr. Katz, On behalf of our firm, our community bank clients, and community banks everywhere I am writing to voice objection to the proposed SEC rule that will put severe constraints on the ability of banks to use their independent auditors for internal audits and other services. Once again, it appears CPA's everywhere must suffer due to the fast and loose operations of our brethren (at least as such term relates professionally) in the largest public accounting firms. Instead of dealing swiftly and justly with those firms who do not abide by existing independence standards, the SEC appears willing to simply impose unfair and constraining new rules on the profession. Typically, I could care less what ridiculous layers of regulation the SEC requires since our firm does not audit any registrants. However, we do have small community bank clients who will be affected by your decisions to the extent that their principal regulators, be they the Office of the Comptroller of the Currency, the Federal Reserve, or the State of Ohio, adopt the same standards. Presently we provide both internal and external audit services to small banks that have no internal auditor on staff. The internal audit outsourcing is performed in accordance with the FFIEC interagency policy statement requirements. The external exam is done in accordance with generally accepted auditing standards. Our clients are not required to have external opinion audits and will simply stop having performed rather than shift to a much more costly additional auditing firm. I simply can't believe the SEC naively believes the application of the proposed independence rules will strengthen audit standards for community banks. In testimony before the SEC in July, Comptroller of the Currency Jerry Hawke said, " I would be concerned if a rigid application of a rule against outsourcing internal audit caused some smaller institutions to elect to forgo such audits, in order to be able to continue outsourcing internal audit functions to the same firm they had been using for external opinion audits." In conclusion, please add my name, and our Firm's, to what I hope is a long list of opponents to your proposed changes. Sincerely, Dan F. Clifford E. S. Evans and Company


Author: Walter Conway at Internet Date: 09/22/2000 1:21 PM Normal TO: RULE-COMMENTS at 03SEC Subject: File No. S7-13-00 ------------------------------- Message Contents SEC, I am writing to express my full support of the proposal by SEC (File No. S7-13-00). It is time to instill true independence and objectivity in the auditing function and provide true assurance to investors. The "fox" should not be watching the "hen house" as these outsourcing arrangements allow. I hope to see this proposal accepted quickly and unanimously by the SEC. Respectfully, Walter Conway, CISA


Author: "Tammy Erickson" at Internet Date: 09/22/2000 11:03 AM Normal TO: RULE-COMMENTS at 03SEC Subject: Reference file No.: S7-13-00 ------------------------------- Message Contents September 22, 2000 Reference file No.: S7-13-00 To Whom It May Concern: I'm writing to protest the proposed SEC rule prohibiting non-audit services to CPA firm's attest clients. My firm serves smaller SEC registrants that require considerable hand holding to comply with SEC reporting rules. The draconian rule proposed by the SEC will effectively eliminate our ability to provide this service, which benefits the SEC, the client and the investing public. 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. 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. The SEC has proposed these new rules with no empirical 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. This quest for theoretical purity will surely reduce the quality of audits, limit access to auditing services and hurt the investing public that the SEC is supposed to protect. Regards, Tammy A. Erickson, CPA


Author: "RONDA FAGGART" at Internet Date: 09/22/2000 10:17 AM Normal TO: RULE-COMMENTS at 03SEC Subject: File No. S7-13-00 ------------------------------- Message Contents ** High Priority ** I am a CPA and I recently became a registered representative of Jefferson Pilot Securities Corporation and obtained a life and health license as well. I am in opposition to the SEC proposed guidelines to limit the scope of services performed by accounting firms. For thirteen years I have wanted to be a licensed representative and contribute all of my efforts in this area. Unfortunately, in order to do this I would have had to change professions entirely, until now. For the first time in my life I can combine the efforts and have the most job satisfaction I have ever had, and I feel confident I will be a tremendous asset to the public and to the SEC. The public deserves the opportunity to work with a CPA/Registered Representative through a CPA firm. They ultimately are the losers in your strict proposals, and I cannot begin to understand why you do not agree, unless you do not fully comprehend the ethics and compliance standards we already practice and have in place for all of our attest service engagements. If you did understand our professional ethics and standards, this would be an absolute no brainer. Isn' t this ultimately what the SEC should be concerned about? It appears the SEC should poll the public, ask them who they would rather do business with? I am 100% certain they would select their CPA/Registered Representative if only given the opportunity. Don't deny the public the very best, in doing so, the SEC, CPA and the public will all be losers. What a tragedy for us all. Life is opportunity, treasure it forever for the SEC could take it all away with the swipe of a pen. Think of all who suffer because of this, and poll the public for the real answers outside or your box, only here will truth and justice be served. Ronda G. Faggart, CPA


Author: at Internet Date: 09/22/2000 5:27 PM Normal TO: RULE-COMMENTS at 03SEC Subject: File # S7-13-00 ------------------------------- Message Contents September 20, 2000 Jonathan G. Katz, Secretary Securities and Exchange Commission 450 5th St. NW Washington, D.C. 20549-0609 Dear Mr. Secretary: In regard to the SEC proposal to limit CPA services, we strongly urge that the proposed rules not be approved. Our firm provides a wide range of valuable services to a client base that is primarily agriculture-related. As you may well know, the vast majority of farmers are struggling to stay afloat and with this proposal you would again be dealing them another deadly blow. They rely heavily on information that is obtained from these services to make the necessary decisions pertaining to their farming operation. Every service from bookkeeping to financial planning is most important to them. My understanding of the effect of the proposal is that CPA's will not be able to offer non-audit services to audit clients. Agriculture audit clients would be forced to select two CPA firms in lieu of one. Because of the inherent inefficiencies involved with dealing with two firms, it is predictable that the total costs to the client will go up, while the quality of services will go down. We feel that you should strongly reconsider this proposal and the definite negative effects to the farm economy. Thank you, Carrie Faudel Latta, Harris, Hanon, & Penningroth, LLP Certified Public Accountants Iowa City, Iowa


Author: "Garbett; Larry; Mr; DCAA" at Internet Date: 09/22/2000 12:19 PM Normal Receipt Requested TO: RULE-COMMENTS at 03SEC Subject: File No. S7-13-00 ------------------------------- Message Contents I support the SEC's proposed new rule requiring greater auditor independence. I am of the belief that an external auditor should not also participate in consulting or internal auditing type roles for the same client. Independence is essential if the public is to have confidence in audited financial statements. Thank you, Larry Garbett Sr. Government Contract Auditor & Pending Certified Internal Auditor Tucson, AZ


Author: "Garcia; Marina L" at Internet Date: 09/22/2000 3:24 PM Normal Receipt Requested TO: RULE-COMMENTS at 03SEC Subject: File No. S7-13-00 ------------------------------- Message Contents I support the SEC's proposed amendment regarding auditor independence requirements. As prescribed by the accounting and auditing standards, auditors must be independent, in fact and appearance, in order to fulfill their responsibilities to the public and government. When an external auditor assumes the role of an internal auditor (i.e., performs internal auditing services), his independence, or appearance of it, is hindered. More than often, the monetary factor may influence their judgment in reaching a conclusion. I commend the SEC's initiative and look forward to regulatory accountability of the external firms. Marina L. Garcia, CPA Supervisor, Internal Audit University of Miami P.O. Box 248106 Coral Gables, FL 33124, #322 mlgarcia@miami.edu


Author: DONI FINDLAN at Internet Date: 09/22/2000 10:14 AM Normal TO: RULE-COMMENTS at 03SEC Subject: File Number S7-13-00 Auditor Independence ------------------------------- Message Contents Kamphaus, Henning & Hood Certified Public Accountants, Inc. 1000 Ohio Pike, Suite 5 Cincinnati, OH 45245 Telephone: 513-752-8350 E-mail: khhcpa@one.net September 22, 2000 Mr. Jonathan G. Katz, Secretary Securities and Exchange Commission 450 Fifth Street N.W., Washington, D.C. 20549-0609 RE: File No. S7-13-00 Dear Mr. Katz: This letter is in protest of the Securities and Exchange Commission proposed rules that would prohibit CPA firms from providing non-audit services to their audit clients. We are a small regional CPA firm the Greater Cincinnati, Ohio area. Our firm has been providing accounting, auditing, consulting, and tax services since 1972. In all these years, we have worked very hard to comply with all rules and regulations handed to this profession and have successfully completed Peer Reviews since the inception of that program. The business climate has certainly changed in the past twenty-five years; technology has changed this profession (and the world) considerably; the labor force is at a thirty year low. Many of our clients have trusted us with all aspects of accounting, tax, auditing, and consulting and our firm enjoys an excellent reputation. Now, the SEC is proposing rules that would limit the services we could provide to our clients. If we conduct an audit, many of which are required by government agencies, we would be prohibited from assisting the client in any other area. This makes no sense to us; the accounting profession may be one of the last places on earth a business owner can turn for discussions like "what do you think about this?" or "what are the rules about this?" Where else can they turn? Bankers, Attorneys, the Government? We think not. We find this profession in a position now where we are seeing competition for the services we provide from banks, credit card companies, and department stores, everywhere! Is it not a conflict for a credit card company to prepare a tax return? How about the IRS itself wanting to prepare tax returns on line? Now the SEC wants to change the rules to make it more difficult for us to remain in business. What next??? Yours truly, Daniel P. Henning Certified Public Accountant


Author: Jim Hudspeth <"jdhcpa"@worldnet.att.net (NO_SPAM)> at Internet Date: 09/22/2000 3:56 PM Normal TO: RULE-COMMENTS at 03SEC Subject: File Number S7-13-00 Auditor Independence ------------------------------- Message Contents The current situation is a bit like driving around on recalled tires. While we could get lucky and have no disaster, the facts are clear and the warning has been posted. It is time to act. -- Jim Hudspeth, CPA - http://home.att.net/~jdhcpa/mainpage.html - Washington, USA Associate Member, Association of Certified Fraud Examiners


Author: "Ron Keister" at Internet Date: 09/22/2000 12:52 PM Normal TO: RULE-COMMENTS at 03SEC Subject: Comment File No. S7-13-00 - Testimony ------------------------------- Message Contents SEC: I would like to express my strong support for this SEC rules proposal regarding the steps and controls needed to help ensure the audit independence of CPA firms. These rules & steps are long overdue! Thanks, Ronald E. Keister, CPA, CIA 6170 River Forest Drive Manassas, VA 20112-3045 gmuaud8r@aol.com 703-590-8267 - home 703-993-3093 - work


Author: Seth Kornetsky at Internet Date: 09/22/2000 1:34 PM Normal TO: RULE-COMMENTS at 03SEC Subject: File No. S7-13-00 ------------------------------- Message Contents I would like to voice my complete support for the sound and reasoned proposal by the SEC that would prohibit CPA firms that perform the financial statements audits from providing internal audit services to the same firms. I feel this is a good first step toward restoring public confidence in external auditors and their independence. Seth Kornetsky Director, Internal Audit Tufts University


Author: "vickie" at Internet Date: 09/22/2000 9:59 AM Normal TO: RULE-COMMENTS at 03SEC Subject: Reference file no.: S7-13-00 ------------------------------- Message Contents In reference to Reference File No. S7-13-00 and the SEC Proposal for restricting services provided by CPAs I am opposed to the position being proposed by the SEC with respect to limiting non-audit services that may be provided by CPAs. I believe the conclusions reached by the SEC are based on selected visible cases involving a few instances in which the SEC observed conflicts. Let me state that I believe these instances are not representative of our profession, and I take offense to the assertion by the SEC that a CPA firm and its partners and employees cannot provide business advisory services for audit clients. Note the position being adopted by the SEC is contrary to the conclusions reached by the Panel on Audit Effectiveness of the Public Oversight Board, whose genesis was at the request of the SEC. The conclusion of this Panel was that no evidence existed to support splitting advisory services from audit services. In fact, the study by the Oversight Board concluded the quality of audits are fundamentally sound. Let me describe an opposing view to the SEC supposition that a CPA cannot be objective in an audit situation if that CPA firm is also providing business advice to that same client. Based on my 23 years of experience in the profession as a licensed and practicing CPA, I believe the numerous ways in which we assist our business clients through various business advice, tax planning and consulting services provides additional insight into a company, its management team and their systems and business practices. This background and insight is very useful in planning and conducting an audit of a company's financial statements because of additional knowledge that is gained about the business as noted above. Any attempt to separate the advisory services from attest function appears to be an artificial cure for a perceived independence problem for which there is no empirical evidence of a cause/effect relationship. Finally, from a personal perspective the changes proposed by the SEC would be damaging to me personnally as well as my firm by forcing audit firms to become overly dependent on fees from audit services. This is especially difficult for the thousands of CPAs serving middle market companies, irrespective of whether their ownership is public or private. In addition, these proposed restrictions would have a negative impact on recruiting and retaining employees. I do some college campus recruiting for my Firm and I know how important it is to our new professionals, as well as existing staff, to be exposed to other ways in which they can provide value to our clients. To suggest that a CPA is not independent to provide audit services as a result of providing other advice to clients is an incorrect and damaging assumption. I encourage you to abandon this proposal for restriction of the scope of services that may be provided by a CPA firm and its employees. Sincerely, Jeff Lenz, CPA Partner - McGladrey & Pullen LLP


Author: "Malagon; Blanca Aurora" at Internet Date: 09/22/2000 11:25 AM Normal TO: RULE-COMMENTS at 03SEC Subject: response to SEC sweeping rules ------------------------------- Message Contents These are my comments regarding the "sweeping rules" being proposed by the Commission: I believe it's about time the SEC stepped in to provide oversight to the monopolistic endeavors of the Big Five and restore the public's confidence in auditors' opinion on financial statements. I think that in the last 15 years, the once well-defined line of independence that was promulgated by AICPA and followed by certified public accountants has since been completely eradicated in the public's eye. It is evident to the public at large (and even more evident to practicing professionals) that such independence has been lost. Therefore, I fully endorse the Commission's proposal. The Commission should also proceed with caution when evaluating responses submitted from certain professional organizations that are highly supported or funded by the Big Five. This includes the AICPA and Institute of Internal Auditors (IIA). Blanca A. Malagon, CPA, CIA, CFE University of Miami 1507 Levante Ave., room #312 Coral Gables, FL 33124


Author: "T M MAY" at Internet Date: 09/22/2000 2:48 PM Normal TO: RULE-COMMENTS at 03SEC CC: at Internet Subject: Reference File No: S7-13-00 ------------------------------- Message Contents September 22, 2000 RE: SEC Proposed Rule to Limit Scope of CPA Services Reference File No: S7-13-00 I am writing to you regarding an unwarranted and intrusive government regulation being initiated by the SEC that would adversely affect the accounting profession. Most dangerous to the accounting profession is the likely prospect that the proposed rule would set a precedent for other regulators. Even firms that do not audit SEC registrants could be impacted by the proposed rules. The SEC proposal would be viewed as the new model by state boards of accountancy, as well as federal and other regulators and could influence the regulatory approach to auditor independence outside the US as well. The SEC has ignored the conclusion of the current Panel on Audit Effectiveness of the Public Oversight Board, a Panel formed at the request of the SEC. The Panel said it could find no evidence that the provision of non-audit services has hurt audit quality and in numerous instances non-audit services contributed to a more effective audit. The Panel concluded that, "both the profession and the quality of audits are fundamentally sound." 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. Yet the SEC has decided to move forward with this proposed rule without facts or evidence. The SEC lacks authority for its sweeping scope of services rule. The statutory provisions cited by the SEC in the proposed rule do not expressly authorize the SEC to make rules governing, regulating or restricting directly the accounting profession, but pertain to public companies' filing of financial statements that have been audited by independent accountants. The SEC's proposed rule 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 what services they can buy is an extraordinary economic intervention without any empirical or other basis. We think many 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. Sincerely, Tina May, CPA 109 N Meridian Street Lebanon, IN 46052


Author: "Craig R. Melton" at Internet Date: 09/22/2000 3:38 PM Normal TO: RULE-COMMENTS at 03SEC Subject: File No. S7-13-00 - Proposed Rule: Revision of the Commissio ------------------------------- Message Contents To whom it may concern: I concur with provisions in the proposed rule on auditor independence stating that certain non-audit services (e.g., internal audit), if provided to an audit client, would impair an auditor's independence. I believe this rule will enhance the integrity of our profession, and ensure that firms that perform financial audits are independent in fact and appearance. -- Craig R. Melton, CPA Audit Manager Audit and Management Services James Madison University MSC 5703 Harrisonburg, VA 22807 phone: (540) 568-3708 fax: (540) 568-6620 e-mail: meltoncr@jmu.edu web page: http://www.jmu.edu/audit ALL OPINIONS EXPRESSED ARE MINE AND NOT NECESSARILY SHARED BY MY EMPLOYER


Author: "Menendez; Mayra" at Internet Date: 09/22/2000 2:47 PM Normal TO: RULE-COMMENTS at 03SEC Subject: No. S7-13-00 ------------------------------- Message Contents I am expressing my support for the Commission's proposed "sweeping rules". Auditor independence is key in providing assurance to investor's that Financial Statements have been examined by an impartial and skilled professional. Providing audit and non-audit services may result in a conflict of interest with the client. The proposed rules will enhance the public's confidence in financial statements. Mayra Menendez, CPA University of Miami Internal Audit Department 1507 Levante Ave. #314 Coral Gables, FL 33124


Author: "Moloney; Michael J." at Internet Date: 09/22/2000 12:16 PM Normal TO: RULE-COMMENTS at 03SEC Subject: Response to File No. S7-13-00 ------------------------------- Message Contents I would like to offer my endorsement and comments regarding the "sweeping rules" proposed by the Commission. I think it sounds like a good step in restoring confidence in accountants' opinions on financial statements. The public and other stakeholders deserve to be able to have confidence in published financial statements and in the independence of those who express opinions on these statements. In particular, with regard to non-audit services, the proposal appears to be a good first step; however, the probation may be too narrow. In the future, the probation should probably be extended so as to prohibit any of the Big 5 from providing such services to any company whose financial statements are audited by any of the Big 5. This is needed because of close inter-working relationships that currently exist within these firms and because of their almost monopolistic position in providing audit services to the Fortune 500. It is clear from the AICPA's actions and the response to calls for action over the past 20 years that self-regulation did not work. These calls for action include the Coher Commission report, the Treadway Report, the Advisory Panel on Auditor Independence's Report to the POB, and the GAO report on the public accounting profession in 1996, among others. So it is good to see that the SEC is finally stepping in. Once this phase is complete, the SEC should then look at improving the quality and effectiveness of audits. One way to make improvements should include holding firms responsible for audit failures, which I would like to see defined as instances when it is disclosed that there were misstatements in the financial statements and the disclosure (i.e., the need for restatement) results in a change in the companies' stock and/or bond prices by more than 15% (or some reasonable percent). Another method of making improvements should be to make the firms responsible for reporting to the responsible agency violations of law and regulations that they become aware of during audits and holding the firms accountable for not identifying problems that they should become aware of. There will and should be a lot of discussions as to what further action needs to take place, but the discussions need to be prompted by the SEC as meaningful discussions and changes probably won't come from the profession itself without close oversight from the SEC. I am a CPA, a CIA, and a CFE, and I don't believe the Commission should back down on any element of the proposed rules. Michael J. Moloney Executive Director of Internal Audit University of Miami P.O. Box 248106 Coral Gables, FL 33124 Email: mmoloney@miami.edu Phone: (305) 284-2605 Fax: (305) 284-2612


Author: "Oneson; Marvin" at Internet Date: 09/22/2000 5:32 PM Normal TO: RULE-COMMENTS at 03SEC Subject: File No. S7-13-00 ------------------------------- Message Contents Dear Sir or Madam: I would like to make a few short comments to you regarding the new changes being considered by the SEC regarding auditor independence. It is my belief that you initiatives are misplaced. I believe that the Independence Standards Board should be responsible for CPA independence issues. I have been a CPA since 1986. I was an Audit Manager in a small 15 person firm for many of those years. I am now an Audit Manager in a regional firm in Ohio. Overall, this seems to be a case of trying to fix something that isn't broken. I have not heard of one audit failure which was caused by the lack of independence now being addressed, or a case where these new initiatives would have prevented the failure. It just seems to me as basic common sense that the more you know about a client, the less likelihood there is that you are going to get surprised by a material fraud after the audit is completed. Mr. Levitt is trying to get the members in small firms to support this initiative. I think is misplaced. I am one person from a small firm who disagrees with most of Mr. Levitt's assumptions, ideas, proposals, and basic beliefs about CPAs and independence. Marvin Oneson, CPA 222 Barb Ct. Heath, OH 43056


Author: Julia Smalley at Internet Date: 09/22/2000 8:53 AM Normal TO: RULE-COMMENTS at 03SEC Subject: File Number S7-13-00 Auditor Independence ------------------------------- Message Contents AS A CPA WHO HAS BEEN PRACTICING FOR ALMOST 40 YEARS AND ONE WHO HAS SERVED AS A MANAGING PARTNER IN CPA FIRMS FOR 30 OF THOSE YEARS, I AM ABSOLUTELY AGAINST YOUR ATTACK ON THE PROFESSION. PUBLIC ACCOUNTING HAS ALWAYS MAINTAINED AN ETHICAL STANDARD REQUIRING INDEPENCE IN BOTH OWNERSHIP AND IN STATE OF MIND. CPA'S ARE ABSOLUTELY NOT INFLUENCED BY THE SERVICES THEY PROVIDE TO THEIR CLIENTS. THE BIG 5 FIRMS ARE MORE COGNIZANT OF CONFLICTS THAN THE LAY PUBLIC. YOUR PROPOSED REGULATIONS AND THE MANNER IN WHICH YOU ARE TRYING TO RAILROAD THESE RULES THROUGH ARE A DISGRACE. I URGE YOU TO STOP THIS WITCH HUNT NOW!!!!


Author: Alex Tzoumas at Internet Date: 09/22/2000 10:46 AM Normal TO: RULE-COMMENTS at 03SEC Subject: File No. S7-13-00 ------------------------------- Message Contents Dear Rules Committee, I have been an auditor for 20 years. During this time I have seen the practice of public accounting become twisted and bent in search of greater accounting firm partner profits. It is high time the SEC put out a document like this. The very essence of independence is objectivity. How can accountants/auditors claim to be independent when they must rely on the management they are assessing to send more work their way? How can the claim objectivity when about assessing the effectiveness of work done by their own firm? Who can they claim objectivity when they have created relationships with management which will only be around if the audit goes well (i.e. greater profitability has been achieved)? The whole idea of public accountants providing internal auditing services is a farce. For one thing, the lack the expertise. But more importantly, they work for management which is who should be held accountable for detected deficiencies. What a conflict. The big 5 even advertise their services by telling management that if they hire them, the report will go to them versus someone truly independent, like the board and shareholders. Please do not let anyone influence this very important rule. Thank you Alexander G. Tzoumas, CIA, CFE, CISA, MBA Internal Audit Manager University of Colorado (303) 492-9732 Phone (303) 492-9737 Fax Alex.Tzoumas@cusys.edu


Author: Scott Webb at Internet Date: 09/22/2000 4:48 PM Normal Receipt Requested TO: RULE-COMMENTS at 03SEC Subject: File No.: S7-13-00 ------------------------------- Message Contents September 22, 2000 Chairman Arthur Levitt Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Dear Chairman Levitt: I am writing to express my objection to the proposed rule change concerning the independence issue of auditors and the providing of other services to their clients. It is my understanding that the original impetus of this bill is the issue of auditors owning the stock of their publicly traded client. I do agree that to the extent possible, auditors should not have a "material" interest in the companies that they audit. Certainly, that understanding has been historically limited to stockholder interests. This rule expands the definition beyond that which we believe is necessary to obtain a satisfactory level of independence. The proposed change would, in my opinion, close the doors of communication that currently exist between the audit firms and their clients. The effect would be to place blinders and earplugs on auditors, and making them begin each audit without any knowledge of their client's activities during the year. In the end this will increase the cost of audits, increase the risk of undisclosed activities to the public and decrease the ability of the auditors to ensure that the accounting issues arising during the year are dealt with effectively. I think it is important to remember that the majority of registrants are small companies and it is highly likely that the auditors have no stock relationship with these entities, either directly or indirectly. To say to those firms that you can only do the audit will cut their revenues and place many at risk of not being able to render such services. This policy then, also is exclusionary since only the larger firms will be able to continue providing the attest services. The smaller registrants will have to pay dearly for the limited assurance gained by this policy change. I do not believe that the public is best served by rushing into a policy which constitutes a sea change in the relationships established over the decades. Instead, the period of comment and study should be extended to determine if the policy will enhance independence or simply restructure the providers of services and eliminate the continuity of information flow. Nothing positive or of substance will be gained by the unnecessary acceleration of this policy. Sincerely, Scott A. Webb, CPA


Author: at Internet Date: 09/22/2000 11:13 AM Normal TO: RULE-COMMENTS at 03SEC Subject: File No S7-13-00 ------------------------------- Message Contents I support the ruling that external auditors performing the financial statement review should not also perform internal audit services. Arlean Wehle Tulane University


Author: at Internet Date: 09/22/2000 5:16 PM Normal TO: RULE-COMMENTS at 03SEC Subject: File #S7-13-00 ------------------------------- Message Contents September 22, 2000 Jonathan G. Katz, Secretary Securities and Exchange Commission 450 5th St. NW Washington, D.C. 20549-0609 Re: SEC Proposal to Limit Scope of CPA Services Dear Mr. Secretary: In regard to the SEC proposal to limit CPA services, we strongly urge that the proposed rules not be approved. Our firm provides a wide range of valuable services to a client base that is primarily agriculture-related. As you may well know, the vast majority of farmers are struggling to stay afloat and with this proposal you would again be dealing them another deadly blow. They rely heavily on information that is obtained from these services to make the necessary decisions pertaining to their farming operation. Every service from bookkeeping to financial planning is most important to them. My understanding of the effect of the proposal is that CPA's will not be able to offer non-audit services to audit clients. Agriculture audit clients would be forced to select two CPA firms in lieu of one. Because of the inherent inefficiencies involved with dealing with two firms, it is predictable that the total costs to the client will go up, while the quality of services will go down. We feel that you should strongly reconsider this proposal and the definite negative effects to the farm economy. Thank you, Alan Winn Latta, Harris, Hanon, & Penningroth, LLP Certified Public Accountants Iowa City, Iowa


Author: at Internet Date: 09/22/2000 10:04 AM Normal TO: RULE-COMMENTS at 03SEC Subject: File No. S7-13-00 ------------------------------- Message Contents September 22, 2000 Senator Robert Torricelli United States Senate Washington, DC 20510 Subject: File No. S7-13-00 Dear Senator Torricelli, Recently a rule has been proposed by the Securities and Exchange Commission that could negatively impact all CPA's and their clients, regardless of size and whether they audit public companies. This proposed rule would prohibit firms that audit public companies from providing certain non-audit services to their audit clients including but not limited to bookkeeping services, payroll services, systems design and implementation, valuation, management consulting, financial planning, expert witness as well as other services which are growing areas in local firms. If this restrictive rule is adopted by the SEC, it is likely that comparable rules will be adopted by individual state boards of accountancy, the Department of Labor, the General Accounting Office, and bank regulatory agencies which will severely limit the ability of all firms to fully serve the needs of their clients. The relationship between auditors and their clients could be adversely affected. The following points should be noted with regards to the proposed rule: The SEC has based its decision to move forward with the rule without facts or evidence. The SEC admits there is no empirical evidence that non-audit services have compromised audit quality or auditor independence. None of the studies or reports concluded that the scope of services impaired audit effectiveness, or that an exclusionary ban was necessary. The SEC ignored the conclusion of the current Panel on Audit Effectiveness of the Public Oversight Board that "both the profession and the quality of audits are fundamentally sound." It also concluded that it could find no evidence that the provision of non-audit services hurt audit quality, but in numerous instances contributed to a more effective audit. This proposal would restrict public companies from freedom of choice when seeking outside professional services. This would force public companies to constantly choose whether to hire a firm solely as its auditor or solely as a provider of other services. CPA's would be banned from acting as an advocate for an audit client, or from providing expert services thus potentially prohibiting CPA's 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 would be precluded from entering into almost any joint venture or partnership in which it may have only an immaterial investment. The SEC in a rush to regulate had adopted a schedule designed to avoid Congressional oversight an preclude meaningful public participation. It has waited until the 11th hour of the Clinton Administration to push through a radical rule potentially restructuring the accounting profession. It has not mentioned in each of the last 10 annual reports to Congress, any concerns about the scope of services issue. It has limited to only 75 days the period to comment on this proposal, including responding to more than 400 questions. The SEC has pre-empted the work of the ISB, which was set up 3 years ago at the initiative of the SEC to develop a new conceptual framework for auditor independence and appropriate implementing standards and has not allowed time for important recent reforms to work, including new disclosure and audit committee requirements required by the ISB, the NYSE, the NASD, the American Stock Exchange and the SEC. If adopted there will be a negative effect on the recruiting and retention of the best talent. Audit and non audit professionals will not want to be at a firm where 25% to 40% of the market is "off limits". The "audit-only" firms will have difficulty attracting the necessary talent from accounting programs and from information technology programs because of the limit in career opportunities, causing a possible degradation in audit quality. The proposed rule is based primarily 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 of independence. The proposal by the SEC to restrict services offered by accounting firms represents a fundamental restructuring of a profession that has successfully given clients reliable information during the past century. It is not the authority of the SEC to restructure an entire profession as well as tell business organizations what services they may offer and whom they may by their services from. This scope of services rule must not be allowed to go forward. Sincerely Teresa L Zipf __________________________ Capaldi Reynolds & Associates


http://www.sec.gov/rules/proposed/s71300/0922b01.htm


Modified:09/26/2000