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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: "Tom Chambers" at Internet Date: 09/23/2000 5:37 PM Normal TO: RULE-COMMENTS at 03SEC CC: "AICPA" at Internet CC: "Tom Hood" at Internet Subject: File No. S7-13-00 ------------------------------- Message Contents Dear Mr. Secretary: I strongly oppose the SEC's proposed Rule on Auditor Independence. I am a sole practitioner CPA with two employees, in a small rural community in Maryland. My firm has approximately 20 audit clients for whom we also provide other advocacy services, which represents over 50% of my total volume. If the proposed rule is adopted, most states will surely follow in the near future, and I would be disqualified from continuing to do this work. I have been shocked at the haste with which your organization has tried to adopt this rule. Surely, 75 days does not provide an adequate amount of time to allow meaningful public participation with such a far-reaching proposal. In essence, the SEC is proposing a fundamental restructuring of a profession that has been giving investors the reliable and independent information they have needed for over 100 years. As I recall, the SEC requested the Public Oversight Board to study the issue of audit effectiveness. The panel that was assigned this task concluded that the quality of audits was fundamentally sound and found no evidence that the provision of non-audit services has hurt audit quality. I have been in this profession for over 20 years (including 4 peer reviews with unqualified opinions as a sole proprietor), and my experience has been that providing non-audit services helps me perform a more effective audit. In summary, the proposal is illogical and has been pursued irresponsibly. It should not be allowed to go forward. Respectfully submitted, Thomas S. Chambers, C.P.A.

Author: "donald henline" at Internet Date: 09/23/2000 6:40 PM Normal TO: RULE-COMMENTS at 03SEC Subject: independent audits ------------------------------- Message Contents sirs, I support trying to make audits independent from firms that consult to a company. It only make common sense that a company will be much more fair in it's appraisal if the company does not have a large contract to consult to the same firm. Afterall who like to give a bad audit to a company it is supposed to be consulting to. Don Henline

Author: at Internet Date: 09/23/2000 6:35 PM Normal TO: RULE-COMMENTS at 03SEC CC: fedleg@aicpa.org at Internet Subject: File S7-13-00 ------------------------------- Message Contents RE: Independence Proposed Rules 1. SEC has all the authority but no responsibility. It has always wanted to take over the audit function and detests private industry (CPAs) from doing it. So why doesn't it just do it - take it over and quite wasting everyone's time with this type of nonsense? No guts to do it? Then shut up and sit in the corner where you belong. 2. The AICPA has no guts to tell the SEC to get lost. Why doesn't it propose that all auditors simply quit doing audits? Sort of a strike. Why does it waste its time and energy fighting proposed rules like these? If the SEC doesn't like the way the audits are done, then let them do them itself (see number 3.) 3. The SEC should take over the audits and hire all those auditors no longer employed by the accounting firms. Assuming they want to work for the government that is. Then the SEC can do whatever it wants because its own employees would be doing the work. Of course they might not be able to find enough qualified people but they can always tap a back to work welfare program for live bodies. 4. The AICPA detests auditors and all compliance work. Just attend any of its conferences especially over the past decade. All the leadership has done is denigrate auditors and anyone else doing compliance work. The CPA must move up the food chain, the CPA needs to get into consulting, get out of compliance work, start a Web Trust, Sys Trust, Trust Trust, Up Trust, Over Trust, anything but auditing. Only recently has the tune started to change as its membership has said to the leadership go stick it where the sun doesn't shine. Thank you very much but we don't need portals, new designations, and most of that other crap you are trying to sell us. This last PCPS conference in Las Vegas was more sales show then technical training. 5. So why is the AICPA getting all upset over this rule change? Just because it is stupid with no factual basis is no reason to get upset or think it is bad. Most stuff out of DC is this way and has been for centuries. Chaos is great. More business opportunities. More money to be made picking up the pieces once it hits the fan. 6. The model that should be used is the IRS and taxes. Congress passes laws, the idiots on paid staff implement, and the people file their returns prepared by individuals or practitioners who could be licensed or not and if licensed could be all the way from tax practitioners to CPAs or attorneys. A sample of returns are picked and checked out. Fights occur regularly and the courts eventually decide who wins assuming not compromised before then. Same idea with financial reports to the SEC. SEC has laws passed saying what they want. The reports can be prepared by anyone. Sample reports are selected and "audited" for compliance. Fines made, prison terms, whatever just like the IRS. As for financial markets, who cares. If the NYSE, NASDAQ, etc don't like it, that's the way it goes. Go write Congress. The SEC isn't your baby-sitter. It wants good reports, clean reports, independent reports, but who cares what the reports say? A person could uncover the largest fraud ever but if he isn't independent, as defined by the SEC, it is worthless. Independence trumps all other issues. Stocks move up and down every second based on everything from facts to rumors. Never heard a stock move because of an audit report. 7. Remember the SEC is great for proposing and weak to implement. Take fines. Just read an article where the President and CFO pleaded guilty to hyping (basically) a stock. The SEC amended complaint proposed a $20 million fine. Settled for around $2 million. Wow. Figure that one. Probably won't collect a dime either. 8. This is my input. A plague on both your houses. You, the SEC and the AICPA, deserve each other. Neither gives a damn about reality only about show. The AICPA asked for this and now it is crying. Tough. The SEC couldn't figure out how to correct a problem if it was laid in front of them. This proposed rule change is just like DC thinking along the lines of "Did anyone unknown to you ask you to carry anything on board the airplane for them?" Ever wonder what would happen if someone said yes? Two last questions for the AICPA - who will audit the portal when all auditors own a piece of it, let alone trying to get your clients to buy office supplies from it which you own via stock ownership, and what the hell is a cognitor? Jerry Levey CPA, CFE, CMA Jerry Levey Co. 4905 SW Griffith Drive, Suite 101 Beaverton, OR 97005-8724 503-646-8225; 800-551-2769 Fax 503-646-8823

Author: at Internet Date: 09/23/2000 2:32 PM Normal TO: RULE-COMMENTS at 03SEC CC: fedleg@aicpa.org at Internet Subject: RE: file No. S7-13-00 ------------------------------- Message Contents The SEC proposed rule changing the independence for CPAs performing opinion audits on SEC registered companies is entirely too restrictive. As I read the proposed rule it will prohibit Licensed CPAs and CPA Firms from providing any other services except income tax preparation for an SEC company they perform attest services for. This will deprive SEC companies from receiving other needed services from the Professionals best qualified to perform them. CPAs are licensed and regulated by State law. They are required to follow Professional Standards in all Attest and Non-Attest services. The proposed rule on CPA independence will encourage many NON-LICENSED ORGANIZATIONS to bid for these services. They will not be required to follow any Professional Standards. The United States has the best regulated accounting profession in the world. The Proposed rule will not strengthen the Attest function in the publics eyes but will make it more difficult for the public to understand why CPA firms are having to split up to provide other needed services to businesses. I do not believe this rule is in the public interest. I do not think the public would understand the United States Government telling SEC registrants who they can hire to provide non Attest Professional Services. Please do not pass this rule with the unreasonable independence requirements. James B. Porter, Jr. CPA September 23.2000 Member AICPA, MO Society of CPAs, National Association of State Boards of Accountancy

Author: at Internet Date: 09/23/2000 7:43 PM Normal TO: RULE-COMMENTS at 03SEC Subject: File # S7-13-00 ------------------------------- Message Contents I do not think that your Auditor can be both an auditor and Consultant at he same time. You cannot be the buyer and the seller!!!! Thank you

Author: at Internet Date: 09/23/2000 3:35 PM Normal TO: RULE-COMMENTS at 03SEC Subject: SEC proposal S7-13-00 ------------------------------- Message Contents September 23, 2000 Jonathan G. Katz, Secretary Securities and Exchange Commission 450 Fifth Street, N. W. Washington, D. C. 20549-0609 Re: Proposed SEC regulation redefining auditors independence - Ref. No S7-13-00 Dear Mr. Katz: I am totally opposed to the sections of this proposed regulation prohibiting auditors from performing numerous other services for our clients. Having practiced in accounting for over twenty-five years, I believe the sections of this SEC proposal will have a tremendous negative impact on the future of my profession for the following reasons: 1. Little if any evidence of problem: There is the old adage "If it ain't broke, don't fix it." From what I have read, the Panel on Audit Effectiveness of the Public Oversight Board (which your agency appointed) concluded: "both the profession and the quality of audits are fundamentally sound." It is also my understanding that the Board found no evidence the provision of additional non-audit services has harmed the quality of my professions audits under the current regulations. In fact, they found just the opposite. The Board's findings included many instances where performing other services actually contributed to the effectiveness of the audit. 2. Severely overstepping its' authority: I am totally opposed to any government agency deciding it has the authority to tell a organizations of a certain industry what services they can offer, and then tell companies who depend on those services who they can contract with to obtain those services. 3. Next step become mandated for all non-SEC companies: If adopted by the SEC, probably most other industries would jump on the band wagon feeling it must be critical and therefore adopted by their industry. If adopted by such agencies as the DOL, financial institution regulators, etc. it would have a tremendous negative financial impact on many smaller businesses or organizations covered by these agencies. 4. Confusing to public if not uniformly adopted: Auditor independence has long been critical in the public's perception. If different regulators require different independence criteria, it will undermine public confidence. Currently, independence standards are basically the same. One regulator going off and adopting its own guidelines, may soon be followed by another agency establishing their own criteria, followed by another regulator with different guidelines. These actions would do nothing but undermine the public's understanding and confidence in what independence means. 5. Open Pandora's box: If the SEC can establish criteria, why not others - regulators, courts, IRS, other countries, etc.? We are moving into a global world. We don't want to open the floodgates and allow anyone to set their own independence criteria. If various groups start establishing their own, where will it end? It is certainly possible for situations to arise where no auditing firm could be independent. This could arise due to conflicting regulatory requirements in a company's diversified operations (different segments governed by conflicting regulatory body independence requirements), or conflicting countries requirements for a business with world-wide locations. 6. Damage CPA client relationships: CPA audit firms would become gun shy whenever their client asked a question. Where does the definition of consulting begin and end. What happens when an auditor is reporting on an internal control problem found in the audit and the client asks how to fix it? If the auditor answers, isn't this consulting? Where do you draw the line? The possible conflicts are endless. Could an auditor be set up by unethical management to perform additional services in border line issues, then use those situations later as a leverage against the auditor? 7. Severe financial harm to most smaller businesses that require audits: Many businesses and organizations do not have the financial resources to afford highly trained in house accounting professionals. Currently these entities are probably not governed by the SEC. However, due to likely impact identified in item #3 above, they could become governed by rules similar, if not identical, to the SEC independence requirements. The accounting personnel these companies can afford do not have the sophistication to understand highly complex FASB, SEC, AICPA, DOL, financial institution, not-for-profit, tax versus book depreciation, etc. requirements. They look to their auditor to assist in these areas. This potential snowball affect of this proposal would effectively require smaller clients to hire two CPA firms; one to help them prepare the financial statements in compliance with all of the appropriate regulations, and another firm to do the audit. Effectively this proposal would require smaller companies to pay the expense for two CPA firms to really understand their business and make sure they are in compliance with all regulations. This would be financially devastating to many of my clients in areas such as small employee benefit plans regulated by the DOL, financial institutions such as small credit union's, not-for-profit organizations required for various reasons to have audits, etc. 8. Limit competition: Many firms are merging to stay competitive. The proposal would further restrict competition. Firms would be forced to elect in many instances whether to be auditors or provide other services. Therefore the pool of CPA firms qualified as auditors would decrease significantly. 9. Limit the college graduate and CPA licensed accounting pool: A significant number of CPA firms provide audit and other services. Audit experience is required in most states to become licensed as a CPA. This allows college graduates a selection between many firms that have enough audit clients so they can become licensed as CPA's. However, this proposal would effectively decrease the number of firms where candidates can gain their experience, therefore decreasing the number of employees and firms' employment options. 10. Severely damage the CPA designation: The main perception of the public is that CPA's are qualified auditors, with many becoming very proficient in other areas such as tax, business valuations, estate planning, etc. However under this proposal, many firms will be forced to drop their audit business. Therefore increasing the public's confusion as to whether a CPA is an auditor, or just what does that designation mean. 11. Financially devastate firms: One of the reasons CPA firms have branched out into other non-traditional areas is due to regulatory interference. The government has forced many businesses to switch to calendar year ends. This severely impacted many CPA's causing them to work like slaves during tax season, and branch out into other areas just to put food on the table the rest of the year. We don't need more regulatory interference that will only further damage the effectiveness in practicing our profession. We are having enough problems right now attracting college candidates into accounting, without adopting the SEC proposed independence regulations that will only increase the shortage. Also, many firms have formed various industry and regional alliances in order to be more effective and serve their clients needs. This proposed regulation could destroy many of those alliances. 12. Minimal exposure and comment period: This proposal appears to have been thrown together very rapidly, given a minimal exposure and comment period, and inappropriately coat-tailed onto other provisions the accounting profession wants for the sole purpose to increase the likelihood of passage. Whenever a regulatory agency ignores the recommendations of an independent board, it brings to question whether the proposal is really in the public's best interest or is the personal agenda of a few. Why was this Board established spending several years researching and developing recommendations based on in-depth research to only have their recommendations ignored? Why was a proposal just the opposite quickly thrown together, published, and pushed to implement as fast as possible? There appears to be more behind this proposal than what appears on the surface. In conclusion I am totally opposed to the independence recommendations in this S7-13-00 proposed regulation. I hope that what appears to be the majority in my profession and the public will have your support in eliminating and defeating this portion of the proposal. Sincerely, Michael D. Tobler, CPA

Author: "grturner" at Internet Date: 09/23/2000 12:27 PM Normal TO: RULE-COMMENTS at 03SEC Subject: File No. S7-13-00 ------------------------------- Message Contents I would like to comment on the SEC mandate to bar public accounting firms from also performing consulting work for clients that they do external audit work for. During my last internal audit position at a medium sized regional bank here in Santa Barbara California, I had the experience of a first hand example of conflict of interest with the firm Arthur Andersen. I was the General Auditor of the bank for 18 years and during this time Arthur Andersen was retained to do the annual directors audit. They were also used extensively in consulting for the bank. On the occasion I mention, AA had been retained to assist the bank in improving their rating in the consumer compliance area. As the General Auditor and manager of compliance, I worked very closely with them in their consulting assignment. During this period I had completed an internaL audit on one of the bank's large deparment that handles Tax Refund loans. It was discovered they were in substantial violation of the the Fair Credit Reporting Act and this was written up in the findings and reported to management. When the AA manager in charge of their engagement read my report, he requested me to suppress this write up of the compliance violation from the final report. He cited as his reason the fact that he did not want the bank's regulatory authority to be able to read the report that would surely point them to the violation of law. My reply to the AA manager was that if he could prove to me that my finding was not accurate or in error, I would remove it from the report, otherwise it stayed as far as I was concerned. In the end the finding was not disproved but AA convinced management to suppress the write-up. In my opinion the SEC is right on the mark when they argue that it is a conflict of interest for a big 5 firm to do consulting for a client for which they are the independent auditor. I hope you are successful in preventing them from doing consulting in this fashion. Keep up the good work! Gary Turner grturner@msn.com

Author: "WILLEY & COMPANY; CPAs" at Internet Date: 09/23/2000 5:26 PM Normal TO: RULE-COMMENTS at 03SEC Subject: S7-13-00 ------------------------------- Message Contents Jonathan G Katz, Secretary Securities and Exchange Commission 450 Fifth Street, NW Washington, DC Dear Mr Katz; The purpose of this letter is to express my strong opposition to the Commission's proposed rule which would radically alter the definition of independence for certified public accounting firms that audit SEC companies. This is the most significant change in the rules governing auditor independence since the federal securities rules were enacted in the 1930s. My understanding is that your own study panel; one formed expressly to consider the integrity of the audit profession (and its product), reported that there is no problem. In the panel's own words, "both the profession and the quality of audits are fundamentally sound". If the Commission's concern is the appearance of independence, then I suggest you look beyond the appearance to the substance of the issue. That is what we in the profession are required to do every day. As a young boy I learned a valuable lesson from my father; IF IT AINT BROKE, DON'T FIX IT. I urge you to apply that principle in your diliberations concerning this proposal. Respectfully, Robert L Willey, CPA September 23, 2000