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

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

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


Author: at Internet Date: 09/25/2000 10:06 PM Normal TO: RULE-COMMENTS at 03SEC Subject: Agreement With Chairman Leavitt's Desire for More Auditor In ------------------------------- Message Contents I cannot stress enough how strongly I agree with chairman Leavitt's desire to limit the conflicts of interest in accounting firms. I am a casualty actuary and have been nothing but appalled at the tremendous willingness of many of my brethren and others in the financial professions in general to tell the public the story the client wants told instead of the true facts. Interestingly, this problem exists in insurance regulation as well as accounting firms. Any help you can provide those of us who are interested in accurate accounting would be appreciated. FYI I am a well-published actuarial author whose work is studied by actuarial students so I do speak with some authority on this matter. I am switching from compuserve (cs.com) to bellsouth.net and do not know my new e-mail address so I may only be reached at 770.908.9208. In any event, keep up the good work! Some of us in the financial professions support you!


Author: Jim Brinkman at Internet Date: 09/25/2000 1:54 PM Normal TO: RULE-COMMENTS at 03SEC Subject: Reference File No:S7-13-00 ------------------------------- Message Contents Dear SEC: I would like to go on record as opposing the passage of the proposed regulation limiting the scope of CPA services. I believe that it is unnecessary ay this time to limit the services that a CPA can provide to clients. From my reading of the subject, there is no evidence that shows that the public is currently being harmed by the present CPA-client arrangements. Certainly, I maintain my independence. I don not wish to see my practice reduced in size should this rule go into effect. Cordially, James Brinkman, CPA 9570 SW Barbur, Suite 312, Portland OR 97219


Author: "Celso L. Chaparro" at Internet Date: 09/25/2000 6:26 PM Normal TO: RULE-COMMENTS at 03SEC CC: senator_hatch@hatch.senate.gov at Internet CC: senator@bennett.senate.gov at Internet Subject: SEC ruling ------------------------------- Message Contents > Subject:Reference File No.: S7-13-00 > > > Dear Jonathan G. Katz, Secretary Securities and > Exchange Commission: > > As a CPA in public practice, I wish to take > this opportunity to offer my > opinion regarding the proposed Securities > Exchange Commission (SEC) > regulation "Revision of the Commission's > Auditor Independence Requirements; > Proposed Rule, 65 Fed. 43, 148 (2000)," (the > proposal). This opinion is > offered prior to the close of the proposal > comment period, which expires > September 25, 2000. > > I firmly believe the proposal, as currently > written, is unwarranted, not > supported by facts, or requested by the > financial and business community we > both serve. Non-audit services offered by audit > firms simply have not > compromised auditor independence or added to > audit failure. I offer and > believe the following support my position > concerning the proposal. > > Audit firms have an excellent > history, awareness and attitude of > maintaining, observing and adhering to the > Independence Rules. Audit firms > are well aware of the Independence Rules in > regard to non-audit services > offered by audit firms. The Independence Rules > are the first and most > understood rules of audit firms. The > Independence Rules for audit firms are > the first rules within the Code of Ethics and > the first functional area > referenced in the Quality Control Standards as > promulgated by the AICPA. > There cannot be any misunderstanding concerning > the importance of the > Independence Rules by audit firms or the > public. > > I cannot see a problem concerning > audit firms violating the > Independence Rules as they relate to non-audit > services. I am curious what > facts and circumstances were used by the > Commission to determine that the > "Scope of Services" offered by audit firms has > resulted in substandard > engagements through financial and auditing > standards violations, since even > the SEC admits that there is no empirical > evidence that non-audit services > have compromised audit quality or auditor > independence, or even 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. > I do not believe there is > factual support for the need for such a > dramatic change relevant to the > "Scope of Services" offered by audit firms. > > In the last 10 annual reports to > Congress, the SEC has not > mentioned any concerns regarding the "Scope of > Services" offered by audit > firms. Where has this concern originated? > > It appears to me that the SEC has > ignored the conclusions of the > SEC's Panel of Audit Effectiveness of the > Public Oversight Board. This SEC > appointed panel concluded, "both the profession > and the quality of audits > are fundamentally sound." The Panel did not > find any evidence that the > provision of non-audit services negatively > impacted audit quality. In fact, > quite the opposite - the Panel instead noted > that "in numerous instances > non-audit services contributed to a more > effective audit." > > The proposal greatly restricts the > ability of the public to > benefit from the knowledge possessed by audit > firms. The financial and > business community will be forced to undertake > procedures which are highly > inefficient and costly in both time and expense > to procure needed non-audit > services from those that simply do not have the > knowledge and understanding > possessed by an audit firm. Public companies' > freedom of choice in > selecting outside professional services will be > restricted. The SEC will be > forcing public companies to constantly choose > whether to hire a firm solely > as its auditor or solely as a provider of these > other services, when the > audit firm may be the best provider for both. > > In that same regard, the proposal's > broad restriction on non-audit > services will in itself, undermine auditor > independence by making audit > firms too reliant and dependent on audit fees. > This dependence by audit > firms on audit fees would not serve the public > interest. > > Although the proposal does clearly > state that it "would not effect > tax-related services" provided by audit firms > to audit clients and > references only compliance services provided by > audit firms to audit > clients, it would prohibit an audit firm from > acting as an advocate for an > audit client, providing expert service in > administrative proceedings, and > logically prohibit audit firms from > representing audit clients before the > Internal Revenue Service. > > The proposal would create a negative > effect on the ability of > audit firms to recruit and retain the best > talent. Professionals would not > be interested in or challenged to work with > firms in which 25% - 40% of the > current market would not open to them to > practice. This prohibition > concerning the ability of professionals to > perform either audit or non-audit > services within a firm would limit the > attractiveness of firms. Simply put, > the best will elect to enter a profession in > which their ability to perform > would not be limited. > > The proposal prohibits audit firms > from entering into almost any > joint venture or partnership with any entity > which may offer non-audit > services to the audit firm's audit client. In > addition, this proposal also > prohibits an audit firm from participating in > beneficial economic activities > and business relationships. These independent, > legal and sound relationships > would be prohibited because the entities > participating would be treated as > "affiliates of the audit firm." > > The proposal will place new > independence requirements between > audit firm members within regional alliances, > associations and cooperative > agreements with respect to the audit clients of > each other. > > The impact to all audit firms, > regardless of having SEC audit > clients or not, will be dramatic. Other > regulators will use the proposal, if > adopted, as a model. This "model" may be used > by state boards of > accountancy, other federal regulators, (i.e., > banking and ERISA areas of > audit practice) and other regulators. > > I believe the significance of this impact > requires the SEC to reconsider the > timing of the proposal because: > > The 75-day comment period is entirely > too short to permit > meaningful and timely public input. This short > comment period does not > permit collecting and analyzing the huge amount > of data required, nor does > it provide enough time to formulate meaningful > and viable alternatives for > regulating the "Scope of Services" offered by > audit firms. > > Three years ago the SEC set up the > Independence Standards Board > (ISB). I believe the work of the ISB is being > pre-empted by this proposal. > The ISB, as originally charged by the SEC, was > to develop new concepts and > framework regarding auditor independence and > related implementation. > > Recently, the ISB, NYSE, NASD, > American Stock Exchange and the SEC > have adopted new disclosure and audit committee > requirements. This proposal > and its timetable have not given enough time > for those requirements to > mature and work. > > The proposal's timetable has been > presented in the last days of > the current Presidential administration. The > lateness within this > administration, and the limit on public input, > will not provide opportunity > for input from Congress and the new > administration. > > In addition, I must question the authority of > the SEC in regard to this > "Scope of Services" rule. The authority cited > by the SEC in the proposal > pertains to the filing of public companies' > financial statements that have > been audited by independent audit firms. This > authority does not provide for > making rules that govern and regulate the audit > profession itself. The > proposed rules clearly concern the "appearance > of independence." The > proposal neglects to address any issues, facts > or circumstances concerning > the additional requirement concerning > independence "fact." Since inception, > the independence rules have been defined by an > auditor's independence in > regard to "appearance and fact." I question > whether the SEC has statutory > authority to impose restrictions because of > possible "perceptions" about > lack of independence. > > In as much as this proposal is a fundamental > change to one of the most basic > and observed rules of the audit profession, I > urge the Commission to defer > its adoption to afford more time for input from > the CPA profession, public > entities, and other interested parties. > > Thank you for your consideration. > > Sincerely, > > Celso L. Chaparro, Accountant > Leverich Rasmuson Banyard > >


Author: "Jeffrey J. Dale" at Internet Date: 09/25/2000 2:10 PM Normal TO: RULE-COMMENTS at 03SEC CC: "Thomas M. Gilbert" at Internet CC: Gilbert Accountancy Corporation at Internet CC: Gilbert Accountancy Corporation at Internet CC: "Edward E. Straine" at Internet CC: Gilbert Accountancy Corporation at Internet CC: "Peggy A. Vande Vooren" at Internet CC: Gilbert Accountancy Corporation at Internet CC: Gilbert Accountancy Corporation at Internet CC: "Sharon A. Tobar" at Internet CC: James Flynn at Internet Subject: S7-13-00 ------------------------------- Message Contents As a manager in a medium-sized local public accounting firm, I feel compelled to comment on the SEC's proposed rule governing auditor independence, labeled S7-13-00. From the published information I have seen, I don't think the Commission fully understands the devastating impact this proposed rule would have on public accounting firms and the profession itself. Though only the largest firms would be directly and immediately affected by the SEC rule, it would be myopic to downplay the precedent this rule would set for other regulators at all levels in this country and around the world. The audit service has become something of a commodity. Accounting firms today must diversify their service offerings in order to survive. The interaction between audit and consulting is crucial in several ways: 1) Audit clients are a ready market for consulting work. Most firms, especially small to medium sized ones, don't have the wherewithal to start a consulting business from scratch with a client base separate from their audit client base. If subject to the proposed rule, most accounting firms would be left with little or no consulting business and little or no prospect of developing consulting business. In today's market, many companies look to their auditors as business advisors, and this rule would restrict the choices of those companies and deny them the benefit of that expertise. 2) Consulting expertise improves the quality of a firm's audits. Understanding of clients' businesses, the industries in which they operate, and the economy at large are an indispensable part of a quality audit, and that understanding would be severely compromised by the proposed rule. Accounting doesn't operate in a vacuum, especially in today's highly competitive business environment, and an audit practice without broad-based business knowledge and experience is an ineffective and inefficient audit practice. 3) Consulting is a significant benefit to audit clients and a boost to a firm's audit business. In the current market, firms have an incentive to develop broad-based business expertise, and their success at doing so is reflected in the fees they are able to charge. With little outside expertise to offer, there would be little to differentiate between firms, and audits would become even more of a commodity. Don't assume this would be a problem only for the audit firms. With prospective clients selecting audit firms based mostly on price, audit firm revenues would be sharply reduced, and audit quality would surely suffer. 4) College graduates have many options in today's market, and the opportunity to develop a variety of marketable skills outside of auditing is a significant benefit. Public accounting firms would find it difficult to offer that kind of opportunity under the proposed rule, and it would become even more difficult for those firms to attract and retain qualified employees than it already is. The loss would be felt both in the skills of audit employees and in the dearth of non-audit employees working for public accounting firms. With less opportunity to offer prospective employees, firms would be obliged to pay higher compensation. In an environment of lower-skilled employees, reduced standards, and higher compensation costs, audit quality would certainly suffer even more. In short, a proposed rule intended to improve the quality of audits would, ironically, have the opposite effect, and would force a devastating restructuring of the public accounting profession. Auditor independence is certainly an issue worthy of concern, but more consideration is needed to develop balanced, workable solutions. The Panel on Audit Effectiveness of the Public Oversight Board, formed at the SEC's own request, not only found no evidence that the provision of non-audit services has hurt audit quality, but concluded that non-audit services had the potential to improve audit quality. I implore the SEC to heed this conclusion, and the concerns of the public accounting profession, and reject this rule, for the good of the profession and the public it serves. Jeffrey J. Dale, CPA Gilbert Accountancy Corporation 1760 Creekside Oaks Drive, Suite 190 Sacramento, CA 95833 (916) 646-6464 voice (916) 641-2727 fax www.GilbertCPA.com JeffDale@GilbertCPA.com


Author: KRYSTAL Deets at Internet Date: 09/25/2000 3:40 PM Normal TO: RULE-COMMENTS at 03SEC Subject: Proposed Rule, 65 Fed. Reg, 148(2000) ------------------------------- Message Contents September 25, 2000 Dear Sirs: I am writing to you to express my sincere concern regarding Securities and Exchange Commission, Revision of the Commission's Auditor Independence Requirements; Proposed Rule, 65 Fed. Reg 43, 148(2000). I began my career in public accounting as an employee of a worldwide professional services firm. Today, I work for a regional firm performing audit services. It is my belief that the proposed scope of services rule, if implemented, will hurt not only those of us who are auditors, but it will also hurt our clients, and ultimately, their investors. As an auditor, I am keenly aware of the importance of independence in an audit. I realize that public perception of my independence is critical to the integrity of the profession and the marketability of my services. However, I frequently encounter audit issues requiring the investment of several days of work beyond those anticipated when the audit fee was negotiated. Because the firm by which I am employed is able to generate revenue in other capacities, I am able to spend the time necessary to perform thorough audits. I believe that the proposed scope of services rule will make audit firms overly or exclusively dependent on auditing fees. Can such dependence on audit fees truly enhance independence from our clients? Certainly not! I have participated in the audits of both audit-only clients, and clients for which our firm performs a variety of services. I have scrutinized the books of both types of clients with the same care and attention to detail. Even the Panel on Audit Effectiveness of the Public Oversight Board did not find that the provision of non-audit services has hurt audit quality. Rather, the Panel stated that in numerous instances non-audit services actually contributed to a more effective audit. What purpose does the burden of additional regulation serve if performance of additional services has not been shown to damage audit results? I mentioned that I believe the proposed regulations will hurt our clients and their investors. Allow me to elaborate. Our firm is extremely familiar with the needs and systems of our clients. Should our clients need assistance selecting new software, hardware, or evaluating their methods, might not our knowledge of their companies make us the best people to provide assistance in these areas? Consultants providing services to their firm's audit clients are motivated to provide the highest quality service possible for a number of reasons, a few of which I will describe: 1. The firm desires to continue its relationship with the client once the consulting services have been completed. A consultant engaged in a one-time job will obviously have a reduced level of concern for the effectiveness of services performed. 2. The firm has a high level of interest in any procedures that will impact our clients' ability to obtain accurate and timely information required for financial reporting. An outside consultant would be more inclined to propose procedures or software that might increase the efficiency of day-to-day operations, but decrease the quality of information used for reporting purposes. Shouldn't investors have access to the highest quality of information available? Certainly, all audit clients are free to use the services of any professional services firm they choose. But if they desire to enlist the services of those who perform their audit, shouldn't they be allowed to do so? Finally, I am certain you are aware that any regulation imposed by the SEC will more than likely be imitated by other regulating bodies. While large firms and businesses might be able to withstand the impact of this proposed regulation, its impact on smaller firms and businesses could be tremendous. Please do not go forward with this proposed rule that would hurt accountants, their clients, and investors alike. Sincerely, Krystal Deets Staff Accountant, Atkinson & Co., Ltd.


Author: "Kelli Dickerson" at Internet Date: 09/25/2000 2:54 PM Normal TO: RULE-COMMENTS at 03SEC CC: at Internet CC: at Internet Subject: Reference File No.: S7-13-00 ------------------------------- Message Contents Dear Jonathan G. Katz, Secretary Securities and Exchange Commission: As an accountant in public practice, I wish to take this opportunity to offer my opinion regarding the proposed Securities Exchange Commission (SEC) regulation "Revision of the Commission's Auditor Independence Requirements; Proposed Rule, 65 Fed. 43, 148 (2000)," (the proposal). This opinion is offered prior to the close of the proposal comment period, which expires September 25, 2000. I firmly believe the proposal, as currently written, is unwarranted, not supported by facts, or requested by the financial and business community we both serve. Non-audit services offered by audit firms simply have not compromised auditor independence or added to audit failure. I offer and believe the following support my position concerning the proposal. Audit firms have an excellent history, awareness and attitude of maintaining, observing and adhering to the Independence Rules. Audit firms are well aware of the Independence Rules in regard to non-audit services offered by audit firms. The Independence Rules are the first and most understood rules of audit firms. The Independence Rules for audit firms are the first rules within the Code of Ethics and the first functional area referenced in the Quality Control Standards as promulgated by the AICPA. There cannot be any misunderstanding concerning the importance of the Independence Rules by audit firms or the public. I cannot see a problem concerning audit firms violating the Independence Rules as they relate to non-audit services. I am curious what facts and circumstances were used by the Commission to determine that the "Scope of Services" offered by audit firms has resulted in substandard engagements through financial and auditing standards violations, since even the SEC admits that there is no empirical evidence that non-audit services have compromised audit quality or auditor independence, or even 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. I do not believe there is factual support for the need for such a dramatic change relevant to the "Scope of Services" offered by audit firms. In the last 10 annual reports to Congress, the SEC has not mentioned any concerns regarding the "Scope of Services" offered by audit firms. Where has this concern originated? It appears to me that the SEC has ignored the conclusions of the SEC's Panel of Audit Effectiveness of the Public Oversight Board. This SEC appointed panel concluded, "both the profession and the quality of audits are fundamentally sound." The Panel did not find any evidence that the provision of non-audit services negatively impacted audit quality. In fact, quite the opposite - the Panel instead noted that "in numerous instances non-audit services contributed to a more effective audit." The proposal greatly restricts the ability of the public to benefit from the knowledge possessed by audit firms. The financial and business community will be forced to undertake procedures which are highly inefficient and costly in both time and expense to procure needed non-audit services from those that simply do not have the knowledge and understanding possessed by an audit firm. Public companies' freedom of choice in selecting outside professional services will be restricted. The SEC will be forcing public companies to constantly choose whether to hire a firm solely as its auditor or solely as a provider of these other services, when the audit firm may be the best provider for both. In that same regard, the proposal's broad restriction on non-audit services will in itself, undermine auditor independence by making audit firms too reliant and dependent on audit fees. This dependence by audit firms on audit fees would not serve the public interest. Although the proposal does clearly state that it "would not effect tax-related services" provided by audit firms to audit clients and reference s only compliance services provided by audit firms to audit clients, it would prohibit an audit firm from acting as an advocate for an audit client, providing expert service in administrative proceedings, and logically prohibit audit firms from representing audit clients before the Internal Revenue Service. The proposal would create a negative effect on the ability of audit firms to recruit and retain the best talent. Professionals would not be interested in or challenged to work with firms in which 25% - 40% of the current market would not open to them to practice. This prohibition concerning the ability of professionals to perform either audit or non-audit services within a firm would limit the attractiveness of firms. Simply put, the best will elect to enter a profession in which their ability to perform would not be limited. The proposal prohibits audit firms from entering into almost any joint venture or partnership with any entity which may offer non-audit services to the audit firm's audit client. In addition, this proposal also prohibits an audit firm from participating in beneficial economic activities and business relationships. These independent, legal and sound relationships would be prohibited because the entities participating would be treated as "affiliates of the audit firm." The proposal will place new independence requirements between audit firm members within regional alliances, associations and cooperative agreements with respect to the audit clients of each other. The impact to all audit firms, regardless of having SEC audit clients or not, will be dramatic. Other regulators will use the proposal, if adopted, as a model. This "model" may be used by state boards of accountancy, other federal regulators, (i.e., banking and ERISA areas of audit practice) and other regulators. I believe the significance of this impact requires the SEC to reconsider the timing of the proposal because: The 75-day comment period is entirely too short to permit meaningful and timely public input. This short comment period does not permit collecting and analyzing the huge amount of data required, nor does it provide enough time to formulate meaningful and viable alternatives for regulating the "Scope of Services" offered by audit firms. Three years ago the SEC set up the Independence Standards Board (ISB). I believe the work of the ISB is being pre-empted by this proposal. The ISB, as originally charged by the SEC, was to develop new concepts and framework regarding auditor independence and related implementation. Recently, the ISB, NYSE, NASD, American Stock Exchange and the SEC have adopted new disclosure and audit committee requirements. This proposal and its timetable have not given enough time for those requirements to mature and work. The proposal's timetable has been presented in the last days of the current Presidential administration. The lateness within this administration, and the limit on public input, will not provide opportunity for input from Congress and the new administration. In addition, I must question the authority of the SEC in regard to this "Scope of Services" rule. The authority cited by the SEC in the proposal pertains to the filing of public companies' financial statements that have been audited by independent audit firms. This authority does not provide for making rules that govern and regulate the audit profession itself. The proposed rules clearly concern the "appearance of independence." The proposal neglects to address any issues, facts or circumstances concerning the additional requirement concerning independence "fact." Since inception, the independence rules have been defined by an auditor's independence in regard to "appearance and fact." I question whether the SEC has statutory authority to impose restrictions because of possible "perceptions" about lack of independence. In as much as this proposal is a fundamental change to one of the most basic and observed rules of the audit profession, I urge the Commission to defer its adoption to afford more time for input from the CPA profession, public entities, and other interested parties. Thank you for your consideration. Sincerely, Kelli P. Dickerson, Accountant Leverich Rasmuson Banyard


Author: "Alexander Gabbin" at Internet Date: 09/25/2000 5:12 PM Normal TO: RULE-COMMENTS at 03SEC Subject: Reference file no: S7-13-00 ------------------------------- Message Contents Jonathan G. Katz, Secretary Securities and Exchange Commission Washington, D.C. 20549-0609 Dear SEC Commissioner: The aspect of the proposed rule change that concerns me the most is the prohibition of accounting firms from performing non-audit services. There is a very real possibility that, if enacted, this prohibition could have significant adverse consequences for accounting education ( in terms of the students who will be attracted to accounting as a major) and the accounting profession. Before such a proposal is enacted, I feel the evidence suggesting that a proposal of this kind is necessary to protect the public interest should be unequivocable. Since I am not aware that such evidence currently exists, I support deleting this prohibition from the current proposal. Alexander L. Gabbin School of Accounting James Madison University


Author: RAVEN GILMORE at Internet Date: 09/26/2000 7:05 AM Normal TO: RULE-COMMENTS at 03SEC Subject: S7-13-00 ------------------------------- Message Contents Dear Sir, I work for a small CPA firm which provides both audit and nonaudit services to non SEC clients. I am against the SEC proposed rules governing auditor independence. The CPA of today and of the future has evolved into more than just an accountant. Today's CPA consults on issues of human resource, management, financial planning, in addition to providing tax and audit services. All of these functions are interrelated and provides a comfort level to clients who would like an all encompassing CPA. Limiting these nonaudit services would curtail the business provided by the small and medium sized CPA firm and would set a precedent on how clients view CPA's. CPA's are held to a certain ethical standard and it should be these standards that CPA's should be held accountable to. Sincerely, Raven Gilmore Ovist & Howard, CPA's Henderson, Nevada 89014


Author: jeremy howard at Internet Date: 09/25/2000 5:33 PM Normal TO: RULE-COMMENTS at 03SEC Subject: S7-13-00 ------------------------------- Message Contents Jonathan G. Katz, Secretary Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549-0609 Dear Sir, I am writing in reference to the proposed file no. S7-13-00. I strongly disagree with this proposal. By separating a CPAs services, it not does a terrible disservice to our clients and the business community at large. Clients are better served through a synergy of services for a variety of reasons. We are able to integrate their retirement goals, personal goals, financial goals, and tax goals together to further achieve these goals. We are able to see the complete picture, and therefore offer more complete service. If CPA firms have to be broken up, confusion will reign. Businesses will pay more for educating various entities of their business operations. Even when the professionals are educated, they then have to be in constant communication with the other various professionals, thereby decreasing efficiency and increasing costs. The good this act would do does not even come close to balancing the harm it will inflict. When Sam Walton started Wal-Mart, he wanted a shopping experience where as many shopper wants and needs were fulfilled. Imagine going to Sam, and saying he was not being fair to everyone by having all these different items at a lower cost. He has to break up and basically start up a shopping mall. We would never do this because it goes against everything America stands for, the free market. Accounting and tax functions are done to record what businesses have accomplished. Their main concern is to do their task as timely and as efficient as possible. The businesses try to fulfill all of their clients needs. What is incredible is, if this act passes, CPAs will prohibited from doing the same kind of good business practice. I hope that a correct decision is made, and S7-13-00 is struck down. I thank you for your time. Jeremy Howard, CPA.


Author: "Jason Knighton" at Internet Date: 09/25/2000 3:20 PM Normal TO: RULE-COMMENTS at 03SEC CC: at Internet CC: at Internet Subject: SEC ruling ------------------------------- Message Contents Dear Jonathan G. Katz, Secretary Securities and Exchange Commission: As a CPA in public practice, I wish to take this opportunity to offer my opinion regarding the proposed Securities Exchange Commission (SEC) regulation "Revision of the Commission's Auditor Independence Requirements; Proposed Rule, 65 Fed. 43, 148 (2000)," (the proposal). This opinion is offered prior to the close of the proposal comment period, which expires September 25, 2000. I firmly believe the proposal, as currently written, is unwarranted, not supported by facts, or requested by the financial and business community we both serve. Non-audit services offered by audit firms simply have not compromised auditor independence or added to audit failure. I offer and believe the following support my position concerning the proposal. Audit firms have an excellent history, awareness and attitude of maintaining, observing and adhering to the Independence Rules. Audit firms are well aware of the Independence Rules in regard to non-audit services offered by audit firms. The Independence Rules are the first and most understood rules of audit firms. The Independence Rules for audit firms are the first rules within the Code of Ethics and the first functional area referenced in the Quality Control Standards as promulgated by the AICPA. There cannot be any misunderstanding concerning the importance of the Independence Rules by audit firms or the public. I cannot see a problem concerning audit firms violating the Independence Rules as they relate to non-audit services. I am curious what facts and circumstances were used by the Commission to determine that the "Scope of Services" offered by audit firms has resulted in substandard engagements through financial and auditing standards violations, since even the SEC admits that there is no empirical evidence that non-audit services have compromised audit quality or auditor independence, or even 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. I do not believe there is factual support for the need for such a dramatic change relevant to the "Scope of Services" offered by audit firms. In the last 10 annual reports to Congress, the SEC has not mentioned any concerns regarding the "Scope of Services" offered by audit firms. Where has this concern originated? It appears to me that the SEC has ignored the conclusions of the SEC's Panel of Audit Effectiveness of the Public Oversight Board. This SEC appointed panel concluded, "both the profession and the quality of audits are fundamentally sound." The Panel did not find any evidence that the provision of non-audit services negatively impacted audit quality. In fact, quite the opposite - the Panel instead noted that "in numerous instances non-audit services contributed to a more effective audit." The proposal greatly restricts the ability of the public to benefit from the knowledge possessed by audit firms. The financial and business community will be forced to undertake procedures which are highly inefficient and costly in both time and expense to procure needed non-audit services from those that simply do not have the knowledge and understanding possessed by an audit firm. Public companies' freedom of choice in selecting outside professional services will be restricted. The SEC will be forcing public companies to constantly choose whether to hire a firm solely as its auditor or solely as a provider of these other services, when the audit firm may be the best provider for both. In that same regard, the proposal's broad restriction on non-audit services will in itself, undermine auditor independence by making audit firms too reliant and dependent on audit fees. This dependence by audit firms on audit fees would not serve the public interest. Although the proposal does clearly state that it "would not effect tax-related services" provided by audit firms to audit clients and references only compliance services provided by audit firms to audit clients, it would prohibit an audit firm from acting as an advocate for an audit client, providing expert service in administrative proceedings, and logically prohibit audit firms from representing audit clients before the Internal Revenue Service. The proposal would create a negative effect on the ability of audit firms to recruit and retain the best talent. Professionals would not be interested in or challenged to work with firms in which 25% - 40% of the current market would not open to them to practice. This prohibition concerning the ability of professionals to perform either audit or non-audit services within a firm would limit the attractiveness of firms. Simply put, the best will elect to enter a profession in which their ability to perform would not be limited. The proposal prohibits audit firms from entering into almost any joint venture or partnership with any entity which may offer non-audit services to the audit firm's audit client. In addition, this proposal also prohibits an audit firm from participating in beneficial economic activities and business relationships. These independent, legal and sound relationships would be prohibited because the entities participating would be treated as "affiliates of the audit firm." The proposal will place new independence requirements between audit firm members within regional alliances, associations and cooperative agreements with respect to the audit clients of each other. The impact to all audit firms, regardless of having SEC audit clients or not, will be dramatic. Other regulators will use the proposal, if adopted, as a model. This "model" may be used by state boards of accountancy, other federal regulators, (i.e., banking and ERISA areas of audit practice) and other regulators. I believe the significance of this impact requires the SEC to reconsider the timing of the proposal because: The 75-day comment period is entirely too short to permit meaningful and timely public input. This short comment period does not permit collecting and analyzing the huge amount of data required, nor does it provide enough time to formulate meaningful and viable alternatives for regulating the "Scope of Services" offered by audit firms. Three years ago the SEC set up the Independence Standards Board (ISB). I believe the work of the ISB is being pre-empted by this proposal. The ISB, as originally charged by the SEC, was to develop new concepts and framework regarding auditor independence and related implementation. Recently, the ISB, NYSE, NASD, American Stock Exchange and the SEC have adopted new disclosure and audit committee requirements. This proposal and its timetable have not given enough time for those requirements to mature and work. The proposal's timetable has been presented in the last days of the current Presidential administration. The lateness within this administration, and the limit on public input, will not provide opportunity for input from Congress and the new administration. In addition, I must question the authority of the SEC in regard to this "Scope of Services" rule. The authority cited by the SEC in the proposal pertains to the filing of public companies' financial statements that have been audited by independent audit firms. This authority does not provide for making rules that govern and regulate the audit profession itself. The proposed rules clearly concern the "appearance of independence." The proposal neglects to address any issues, facts or circumstances concerning the additional requirement concerning independence "fact." Since inception, the independence rules have been defined by an auditor's independence in regard to "appearance and fact." I question whether the SEC has statutory authority to impose restrictions because of possible "perceptions" about lack of independence. In as much as this proposal is a fundamental change to one of the most basic and observed rules of the audit profession, I urge the Commission to defer its adoption to afford more time for input from the CPA profession, public entities, and other interested parties. Thank you for your consideration. Sincerely, Jason Knighton Tax Specialist Leverich Rasmuson Banyard


Author: at Internet Date: 09/25/2000 4:13 PM Normal TO: RULE-COMMENTS at 03SEC Subject: File No. S7-13-00 - (Auditor Independence) ------------------------------- Message Contents I do believe an audit firms independence is compromised when that same firm is contracted or ratified by a board of directors of a publicly traded company. I also think that beside that argument, the independence auditing firms are supposed to maintain is compromised by continuous re-election and the dollars billed by these firms for big fortune 500 dollars. Although consulting fee's may generate more revenue for the auditing firm, the cost of an audit and the revenue that it generates in something to consider. These auditing service revenues may be smaller that consulting revenue, but they're nothing to dismiss. There's a lot of money associated with audits. I know companies where the external auditors are staffed right at the company headquarters. Tell me this isn't a conflict of interest or that independence isn't compromised! Thanks, WAL Regional Controller - BDD Southwest Region Phone: 409-866-4778, ext. 343 Fax: 409-866-8526


Author: "mlopez mlopez" at Internet Date: 09/25/2000 6:46 PM Normal TO: RULE-COMMENTS at 03SEC Subject: S7-13-00 ------------------------------- Message Contents I believe the proposed rule is longtime overdue. It will likely save the profession and will ultimately benefit the investing community and the population at large mlopez@britannica.com


Author: "dportman" at Internet Date: 09/25/2000 6:08 PM Normal TO: RULE-COMMENTS at 03SEC Subject: File No. S7-13-00 ------------------------------- Message Contents September 25, 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 Revision of the Commission's Auditor Independence Requirements Dear Mr. Katz: I want to offer my support for the changes the Commission is proposing for auditor independence. I commend you and your committee for this initiative aimed at improving and modernizing the public accounting profession. My years of experience have taught me that two of the most important qualities in our profession are reliability and integrity. I have also learned that perception is often times as important as reality. The work done by public accountants must be both independent and perceived by investors and others in the public arena as independent. Anything that compromises that position should not be tolerated as our financial markets, indeed our entire business community, rely totally on this position to function. I reviewed the proposed rule amendments and also the hearing testimony from the hearing held July 26, 2000. Like many of those providing testimony, I believe auditor independence will be best achieved by curbing the proliferation of non-audit services provided by a public accounting firm to its audit clients. I think an outright ban on these non-audit services is the only way to guarantee compliance. There are plenty of non-audit clients that audit firms can pursue to provide their non-audit services. At a minimum, the proposed proxy disclosure requirements will help the public understand the relationship an entity has with its public accounting firm. There are many non-audit services that could, potentially, impair independence. Certainly any outsourcing of the internal audit function to the organization's external auditing firm impairs independence. But we must also look deeper and review the services that are not so obvious in their ability to impair independence. Services such as financial information systems design and implementation, appraisal or valuation services, actuarial services, human resources and many management functions must also be reviewed. I have always believed that auditors cannot function as a part of client management and remain independent. It is human nature, especially when fees are involved. Now is the time to strengthen and modernize our profession and the proposed SEC rule amendments regarding auditor independence do just that. I urge you to go forward with these needed changes including the relaxing of restrictions on investment and employment imputed to a public accounting firm. Thank you and all the Commissioners, I look forward to working under the new guidelines. David G. Portman Cincinnati, Ohio


Author: "Tom Simmons" at Internet Date: 09/25/2000 2:45 PM Normal TO: RULE-COMMENTS at 03SEC CC: at Internet CC: at Internet Subject: Reference File No.: S7-13-00 ------------------------------- Message Contents Dear Jonathan G. Katz, Secretary Securities and Exchange Commission: As a accountant in public practice, I wish to take this opportunity to offer my opinion regarding the proposed Securities Exchange Commission (SEC) regulation "Revision of the Commission's Auditor Independence Requirements; Proposed Rule, 65 Fed. 43, 148 (2000)," (the proposal). This opinion is offered prior to the close of the proposal comment period, which expires September 25, 2000. I firmly believe the proposal, as currently written, is unwarranted, not supported by facts, or requested by the financial and business community we both serve. Non-audit services offered by audit firms simply have not compromised auditor independence or added to audit failure. I offer and believe the following support my position concerning the proposal. Audit firms have an excellent history, awareness and attitude of maintaining, observing and adhering to the Independence Rules. Audit firms are well aware of the Independence Rules in regard to non-audit services offered by audit firms. The Independence Rules are the first and most understood rules of audit firms. The Independence Rules for audit firms are the first rules within the Code of Ethics and the first functional area referenced in the Quality Control Standards as promulgated by the AICPA. There cannot be any misunderstanding concerning the importance of the Independence Rules by audit firms or the public. I cannot see a problem concerning audit firms violating the Independence Rules as they relate to non-audit services. I am curious what facts and circumstances were used by the Commission to determine that the "Scope of Services" offered by audit firms has resulted in substandard engagements through financial and auditing standards violations, since even the SEC admits that there is no empirical evidence that non-audit services have compromised audit quality or auditor independence, or even 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. I do not believe there is factual support for the need for such a dramatic change relevant to the "Scope of Services" offered by audit firms. In the last 10 annual reports to Congress, the SEC has not mentioned any concerns regarding the "Scope of Services" offered by audit firms. Where has this concern originated? It appears to me that the SEC has ignored the conclusions of the SEC's Panel of Audit Effectiveness of the Public Oversight Board. This SEC appointed panel concluded, "both the profession and the quality of audits are fundamentally sound." The Panel did not find any evidence that the provision of non-audit services negatively impacted audit quality. In fact, quite the opposite - the Panel instead noted that "in numerous instances non-audit services contributed to a more effective audit." The proposal greatly restricts the ability of the public to benefit from the knowledge possessed by audit firms. The financial and business community will be forced to undertake procedures which are highly inefficient and costly in both time and expense to procure needed non-audit services from those that simply do not have the knowledge and understanding possessed by an audit firm. Public companies' freedom of choice in selecting outside professional services will be restricted. The SEC will be forcing public companies to constantly choose whether to hire a firm solely as its auditor or solely as a provider of these other services, when the audit firm may be the best provider for both. In that same regard, the proposal's broad restriction on non-audit services will in itself, undermine auditor independence by making audit firms too reliant and dependent on audit fees. This dependence by audit firms on audit fees would not serve the public interest. Although the proposal does clearly state that it "would not effect tax-related services" provided by audit firms to audit clients and references only compliance services provided by audit firms to audit clients, it would prohibit an audit firm from acting as an advocate for an audit client, providing expert service in administrative proceedings, and logically prohibit audit firms from representing audit clients before the Internal Revenue Service. The proposal would create a negative effect on the ability of audit firms to recruit and retain the best talent. Professionals would not be interested in or challenged to work with firms in which 25% - 40% of the current market would not open to them to practice. This prohibition concerning the ability of professionals to perform either audit or non-audit services within a firm would limit the attractiveness of firms. Simply put, the best will elect to enter a profession in which their ability to perform would not be limited. The proposal prohibits audit firms from entering into almost any joint venture or partnership with any entity which may offer non-audit services to the audit firm's audit client. In addition, this proposal also prohibits an audit firm from participating in beneficial economic activities and business relationships. These independent, legal and sound relationships would be prohibited because the entities participating would be treated as "affiliates of the audit firm." The proposal will place new independence requirements between audit firm members within regional alliances, associations and cooperative agreements with respect to the audit clients of each other. The impact to all audit firms, regardless of having SEC audit clients or not, will be dramatic. Other regulators will use the proposal, if adopted, as a model. This "model" may be used by state boards of accountancy, other federal regulators, (i.e., banking and ERISA areas of audit practice) and other regulators. I believe the significance of this impact requires the SEC to reconsider the timing of the proposal because: The 75-day comment period is entirely too short to permit meaningful and timely public input. This short comment period does not permit collecting and analyzing the huge amount of data required, nor does it provide enough time to formulate meaningful and viable alternatives for regulating the "Scope of Services" offered by audit firms. Three years ago the SEC set up the Independence Standards Board (ISB). I believe the work of the ISB is being pre-empted by this proposal. The ISB, as originally charged by the SEC, was to develop new concepts and framework regarding auditor independence and related implementation. Recently, the ISB, NYSE, NASD, American Stock Exchange and the SEC have adopted new disclosure and audit committee requirements. This proposal and its timetable have not given enough time for those requirements to mature and work. The proposal's timetable has been presented in the last days of the current Presidential administration. The lateness within this administration, and the limit on public input, will not provide opportunity for input from Congress and the new administration. In addition, I must question the authority of the SEC in regard to this "Scope of Services" rule. The authority cited by the SEC in the proposal pertains to the filing of public companies' financial statements that have been audited by independent audit firms. This authority does not provide for making rules that govern and regulate the audit profession itself. The proposed rules clearly concern the "appearance of independence." The proposal neglects to address any issues, facts or circumstances concerning the additional requirement concerning independence "fact." Since inception, the independence rules have been defined by an auditor's independence in regard to "appearance and fact." I question whether the SEC has statutory authority to impose restrictions because of possible "perceptions" about lack of independence. In as much as this proposal is a fundamental change to one of the most basic and observed rules of the audit profession, I urge the Commission to defer its adoption to afford more time for input from the CPA profession, public entities, and other interested parties. Thank you for your consideration. Sincerely, Thomas Simmons, accountant Leverich Rasmuson Banyard


Author: "Don Sorensen" at Internet Date: 09/25/2000 4:06 PM Normal TO: RULE-COMMENTS at 03SEC Subject: S7-13-00 ------------------------------- Message Contents Jonathan G. Katz, Secretary Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549-0609 Dear Mr. Katz: I am writing to comment on the SEC's proposed rule that would limit non-audit services provided by CPA firms to audit clients. I have over 29 years of auditing experience with public accounting firms and 3 years as a governmental auditor. I believe that the SEC's proposed rule is a step in the wrong direction. One of the greatest risks that an auditor faces is a lack of understanding. This lack of understanding can relate to the audit client's accounting system, personnel, management intent & integrity, unique industry standards, just to name a few. A tremendous amount of understanding can be obtained by providing other accounting or consulting services. This understanding can, and usually does, increase the quality of audits. I believe that the most difficult audits that our firm has performed over the past 25 years are those in which we only provide audit services. In these instances we have a difficult time developing a relationship and trust level that is essential to a quality audit. I assume that the SEC's rationale in proposing this rule is to increse auditor independence. However, I do not believe that an auditor gains independence by being unaware. Most CPAs are honestly trying to do a good job and hold the present independence standards in high regard. The proposed rule would do nothing to improve auditor independence, it would only make the audit function more difficult. Please reconsider the proposed rule. Sincerely, Don L. Sorensen, CPA


Author: "Susan Spyker" at Internet Date: 09/25/2000 11:45 AM Normal TO: RULE-COMMENTS at 03SEC Subject: File No S7-13-00. ------------------------------- Message Contents I am writing to you about the proposed federal regulation being initiated by the SEC that threatens my profession. Specifically, File No S7-13-00. If this proposal is approved, I fully expect it to find its way to state regulators across the country, significantly changing the way accounting firms do business. The impact of such a change would be widely felt by forcing accounting firms to limit their clients to either audit or non-audit services. This limitation would prove to be a disservice to our clients and have a negative financial impact on our firm. Twenty percent of our current services are audit or audit related services. The Panel on Audit Effectiveness of the Public Oversight Board, which was formed at the request of your organization, recently concluded that there was no evidence that the provision of non-audit services has hurt audit quality. In fact, it concluded that both the profession and the quality of audits are fundamentally sound and that in numerous instances non-audit services contributed to a more effective audit. This proposal restricts freedom of choice by limiting the services an accounting firm can provide. This type of oversight is unwarranted and intrusive. Respectfully submitted, Susan M. Spyker, CPA


Author: ksullivan@wgjcpa.com (Kevin Sullivan) at Internet Date: 09/25/2000 3:24 PM Normal TO: RULE-COMMENTS at 03SEC Subject: File No. S7-13-00 ------------------------------- Message Contents To Whom It May Concern: I am writing to you to express my concerns that the recent SEC proposal to prohibit accounting firms from providing non-audit services to their audit clients is too far reaching and should not be approved. I agree that the independence rules must be updated and monitored more closely than ever, however the current proposal as made by the SEC is too far reaching in today's international economy and would adversely affect the majority of smaller firm CPAs. Please do not support the current SEC proposal as proposed. It would be detrimental to smaller firms and CPA practitioners who have privately owned small businesses as their clients. Sincerely, Kevin M. Sullivan, CPA 1134 Schooner Way Saint Paul, MN 55125-9291 612-384-8243


Author: "Brenda Scobey" at Internet Date: 09/25/2000 4:44 PM Normal TO: RULE-COMMENTS at 03SEC Subject: Fw: S7-13-00 ------------------------------- Message Contents _____________________________________________________________________________ Confidentiality Notice: The documents accompanying this electronic mail message contain confidential information belonging to the sender and may be legally privileged. The information is intended only for the use of the individual or entity named above. If you are not the intended recipient, you are hereby notified that any disclosure, copying, distribution or the taking of any action in reliance on the contents of this information is strictly prohibited. If you have received this transmission in error, please notify us by telephone (1-616-575-3482). September 24,2000 Jonathan G Katz Securities and Exchange Commission 450 Fifth Street. N.W. Washington, D.C. 20549-0609 Reference file no. S7-13-00 Dear Mr. Katz I am writing to you regarding the proposed rule which would prohibit public accounting firms from performing any other services for sec audited clients. The way the proposal is written it appears this would apply to all audit clients of public accounting firms even firms not under the jurisdiction of the SEC. I am a shareholder in a 42 person public accounting firm. We do not have any SEC clients. We do have several audit clients and we perform other services for these clients such as consulting work, human resource work, computer consulting work, marketing work, financial planning work and sometimes valuation work. Your proposal if passed would have a drastic impact on our practice and countless numbers of other public accounting firms throughout the country. It would also have a huge impact on the customers we serve. Please reconsider the proposal in its current form. Sincerely yours Michael T Tamm CPA Echelbarger Himebaugh Tamm @ Co PC 5165 Cascade Road SE Grand Rapids, Michigan 49546 (616) 575-3482 E-mail miket@ehtc.com


Author: at Internet Date: 09/25/2000 9:34 PM Normal TO: RULE-COMMENTS at 03SEC Subject: S7-13-00 ------------------------------- Message Contents Jonathan G. Katz, Secretary Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549-0609 Dear Sir, I am writing in reference to the proposed file no. S7-13-00. I strongly disagree with this proposal. By separating a CPAs services, it not does a terrible disservice to our clients and the business community at large. Clients are better served through a synergy of services for a variety of reasons. We are able to integrate their retirement goals, personal goals, financial goals, and tax goals together. We are able to see the complete picture, and therefore offer more complete service. If CPA services are broken up, confusion will reign. Businesses will pay more for educating various entities on their business operations. Even when the professionals are educated, they then have to be in constant communication with the other various professionals, thereby decreasing efficiency and increasing costs. The good this act would do does not even come close to balancing the harm it will inflict. Accounting and tax functions are done to record what businesses have accomplished. A businesses main concern is to do their task as timely and as efficient as possible. If this act passes, CPAs will be prohibited from doing the same kind of good business practice. I hope that the correct decision is made, and S7-13-00 is struck down. I thank you for your time. Michael Torres


http://www.sec.gov/rules/proposed/s71300/0925b02.htm


Modified:10/02/2000