September 18, 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 am a private individual who relies on CPA certified annual reports in order to evaluate the risks I may be assuming if I decide to invest in a particular company. From the material I have picked up in the media I am shocked to find out that the large accounting firms on whose opinions I am relying have been providing ongoing "consulting" services to the same firms they are supposedly auditing on an independent basis. How is this possible? Isn't this tantamount to having the fox watching the hen house? .
The standard wording in an independent auditors report states that the financial statements are the responsibility of the company's management. The financial statements in turn represent an accounting summary of the company's ongoing (hopefully) business operations. If management employs consulting services in order to assist the company with its ongoing operations, it seems to me the impact of those services migrate into the financial statements. Isn't there an inherent conflict of interest if the consulting services are provided by an arm of the firm rendering an independent opinion on the fairness of the statements as a whole? Would an "independent" accounting firm indicate the statements do not fairly present the financial condition of the company if they had a hand in shaping the underlying operations and account?
I recently purchased a home and was handed a RESPA document by my financial institution. The lending office told me that the purpose of the form was to disclose whether the lender had any ongoing relationship to service providers involved in the transaction. I THOUGHT THIS WAS WONDERFUL! If Congress saw fit to pass this kind of legislation with regard to home loan transactions couldn't you follow their reasoning and conclude that there is definite intent from a public policy perspective to discourage (or at least disclose) transactions which are not at arms length. I believe the same congressional intent can be found when it comes to insider transactions both in banking and securities transactions. Consulting firms become insiders to a degree in a company's operations. Having an affiliate of an insider render an opinion on the fairness of the financial statements removes any pretense of independence in my opinion.
Please continue with your pursuit of the proposed rule and re-establish the independence of outside accounting firms. I do not feel a simple disclosure of the consulting relationship would suffice. I feel an outright prohibition should be enforced in order to regard the opinion of an accounting firm as truly independent.
Thank you for any consideration you may give to my comments.
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James J. Bartoszek