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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: Ralph Albert Thomas at Internet Date: 09/22/2000 4:25 PM Normal TO: RULE-COMMENTS at 03SEC Subject: Reference file No.: S7-13-00 ------------------------------- Message Contents September 22, 2000 Mr. Jonathan G. Katz Secretary Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549-0609 RE: Comments on Proposed Rule- File No. S7-13-00 Dear Members of the Commission: On behalf of the N.J. Society of CPAs' 14,000 members, we strongly urge you to remove the "scope of services" section from the above referenced rule proposal regarding auditor independence. We believe that this part of the proposal, severely limiting the non-audit services a firm could provide to audit clients, is unnecessary and could have a devastating impact on accounting firms and the businesses and public they serve. The NJSCPA believes it is inappropriate to tie the modernization of financial interest and family rules, which we support and believe are long overdue, to the highly controversial scope of services proposal. Modernization of these financial-interest standards can and should occur on an expedited basis, independent of the scope of services initiative. We feel that the impact of the proposal will probably go beyond large accounting firms that audit public companies. Firms of all sizes are likely to be impacted when state boards of accountancy and other government entities attempt to harmonize their rules with those of the SEC. We note the lack of any material evidence to support the conclusion that providing non-audit services has impaired independence or audit quality. The proposed rule ignores 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. That 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. Perhaps most importantly, we are deeply concerned about the process by which this proposal has been moving forward. Specifically, we are referring to a schedule of hearings that avoids Congressional oversight; the introduction, at the eleventh hour of the Clinton Administration, of a rule to restructure the accounting profession (in each of the last 10 annual reports to Congress, the SEC has not mentioned any concerns about the scope of services issue); and the unduly short comment period of 75 days. Furthermore, this proposal ignores the work of the Independence Standards Board, set up three years ago at the initiative of the SEC, to develop a new conceptual framework for auditor independence and appropriate implementing standards. It also does not allow 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. Thank you for considering our views on this important issue. Sincerely, <<...>> <<...>> Sharon L. Lamont, CPA Ralph Albert Thomas, CPA President Executive Director <<...>> Michael A. Polito, CPA President-Elect

Author: "Lou H. Mills" at Internet Date: 09/22/2000 5:45 PM Normal TO: RULE-COMMENTS at 03SEC CC: at Internet CC: "Robert L. Bunting" at Internet CC: "Ed Drosdick" at Internet CC: "Neal West" at Internet CC: at Internet Subject: S7-13-00 ------------------------------- Message Contents To Whom It May Concern: I protest the proposed SEC scope of services rule that would prohibit accountants from offering both audit and non-audit services to clients. If we had to work under the SEC's proposed ruling, we would be hobbled in delivering our services, which benefit everyone, including the SEC, the investing public, and our clients. For instance, the regulations will prohibit us from representing our audit clients before the IRS. Because of such strictures, our competitive health will be compromised. And our potential for growth will be crippled because of regulatory limitations on our right to form partnerships and joint ventures. Regulations would make mergers unmanageably complex. Typical of many mid-sized businesses, we are trying to diversify and make our services competitive. Our business clients hire our expertise for many reasons. We are their source not only for audit functions but also practical advice on the many systems, controls and policies they must follow to be successful. Your proposed audit-independence rules promise enormous fee increases on the part of CPAs who will be restricted to audit services. Only firms that can afford Big Five services will have access to audit services because most firms below that level will stop serving SEC registrants. I am also disturbed that you are attempting to restructure my profession without Congressional oversight or public participation, and at a time of political transition. This appears to be a flagrant misuse of the SEC's mandate. What's more, you have proposed these new rules with no empirical evidence that they will result in any increase in audit independence or effectiveness. The SEC has issued these proposals despite insufficient research into how accountancy services function to speed the growth and health of American business. If you would apply closer scrutiny to actual accounting practices you would find that non-audit services contribute to a more effective audit. Restructuring this profession will unnecessarily disrupt a service industry that has for the past century given investors the reliable, independent data they need. Finally I would like to bring your attention to another side effect of your proposed rules. At my company we maintain a large staff of seasoned professionals and new talent, drawn to us by the variety of tasks we call on them to perform. Perhaps the most disastrous fallout from this initiative would be its long-term effect on the face of American accounting. Young people coming out of accounting programs may not choose to direct their careers into jobs that are encumbered by excessive limits imposed by government regulation. The best of them will go to industries with greater promise. This extraordinary economic intervention is a curious public policy position for our government to take. I think many Americans will see that if these proposals are enacted, they will ultimately hurt the investors whom the SEC is chartered to protect. This scope of services rule must not go forward. Regards, Lou Mills Louis H. Mills Phone: 206-447-4253

Author: "Joel L. Powell" at Internet Date: 09/22/2000 5:24 PM Normal TO: RULE-COMMENTS at 03SEC Subject: S7-13-00 ------------------------------- Message Contents I am writing to comment on the proposed SEC rule significantly restricting non-audit services to CPA firm's attest clients. My firm generally provides services to smaller SEC registrants that tend to require additional assistance to comply with SEC reporting requirements. The rule proposed by the SEC will effectively preclude us from providing these needed services which we believe benefits the SEC, the client and outside investors. Smaller registrants rely on their CPA firms to perform needed advise on the many systems, controls and policies they must follow in order to be successful in business and comply with regulations. It will be very difficult for these businesses to segregate their CPA relationship into multiple ones in order to comply with the proposed independence rules. I believe many well-qualified CPA firms may refuse to provide audit services which will eventually restrict smaller companies from obtaining reasonably priced audits. I appreciate the general objective of the SEC, to increase the quality and objectivity of the independent audit process. However, I believe a rule of these consequences should only be implemented based on empirical evidence and adequate due process. I understand the current Panel on Audit Effectiveness of the POB recently concluded it could find no evidence that the provision of non-audit services has hurt audit quality. Based on the above, I am urging the SEC to reconsider and eliminate its proposed rule. Alternatively, the following "compromises" should be considered. 1. Require full disclosure to the entity's board and the investing public of amounts paid to the registrant's audit firm for audit and non-audit services. 2. Establish limits of the percentage of total fees paid by any one registrant to its audit firm to the firm's total revenues before independence would be judged to have been impaired. (i.e. Is there really empricial evidence to suggest that a firm would allow its objectivity and judgment to be impaired over a client whose fees represent a small percentage [say 1%] of its total revenue?) Repectfully submitted, Joel L. Powell Phone: (541) 686-1040 Fax: (541) 686-9673 e-mail: joelp@mossadams.com

Author: "Jeffrey Rovner" at Internet Date: 09/22/2000 11:10 PM Normal TO: RULE-COMMENTS at 03SEC Subject: File No. S7-13-00 ------------------------------- Message Contents I want to support the SEC's efforts to force the separation of non-auditing consulting services from auditing services. The public interest is only served by public audits if we can be certain that they are not influenced by the need to retain other business. Further, in the interests of public disclosure, I would like to condemn the practice of 'sealing the record' when cases are settled with companies. The work of the SEC is public, and all records must be public. Thank you, Jeffrey Rovner 5385 n Bowmanville Chicago Il 60625

Author: "Mike Tayloe; CPA" at Internet Date: 09/22/2000 6:40 PM Normal TO: RULE-COMMENTS at 03SEC CC: at Internet Subject: S7-13-00 ------------------------------- Message Contents In general, I support the intent of your proposal. I have noted instances where CPA's have behaved in a less than circumspect manner. In this instance however, I think your solution is much larger than the problem. As a local practitioner I am concerned with the trickle-down impact of your regulation on the state regulatory boards. We at the local level are being squeezed out of new opportunities due to archaic and draconian regulations now and do not need you promoting more of the same. With cooperation from all the parties, we can resolve the real and perceived problems without destroying the accounting profession in the process. Mike Tayloe, CPA