J O S E P H M. B O S W E L L , C P A
September 23, 2000
Mr. Jonathon G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609
RE: Proposed SEC Rule - File No. S7-13-00
Dear Mr. Katz:
The sweeping changes that the Securities and Exchange Commission has proposed regarding auditors' independence are both unjustifiably harsh and completely unnecessary.
Your proposal ignores conclusions set forth by the Panel of Audit Effectiveness of the Public Oversight Board (a panel convened at the request of the SEC) that stated "... the profession and the quality of audits are fundamentally sound." Furthermore the panel concluded that non-audit services provided by audit firms to their audit clients showed:
1) No evidence that non-audit services affected the quality of the audit, and
2) In many cases non-audit services contributed to a more effective audit.
As an auditor of commercial entities, both publicly and privately held, I can personally attest to and concur with the above conclusions. In fact, my clients find that the non-audit services provided help to improve their business practices and controls with respect to very serious issues including, but not limited to, fraud. To think that a firm with little knowledge of a client can propose effective and efficient adjustments to any system is clearly an ignorant perspective.
I challenge you to consider the business relationships established by the SEC during your tenure. How many would qualify as lacking independence or being outside of the "scope of services" given the restrictions imposed by the proposal discussed here today? Moreover, consider how much time and money has been saved for taxpayers because you have used knowledgeable professionals to help administer your commission's controls and practices.
It seems ludicrous that someone who only reads the financial statements generated by auditors in public accounting has an understanding of how seriously professionals in public practice consider issues such as independence, ethics and integrity to be. It seems that there is little understanding from the SEC's position of exactly the lengths public accounting professionals take to remain independent both in appearance and in fact. Public accounting professionals take independence, integrity and ethical issues very seriously and in fact, our industry as a whole is not only outraged at this proposal, but offended as well. It should be noted that public perception of public accounting
professionals is extremely high. The reason for that is that as public accountants serving the public, we take our profession and the related responsibilities seriously and have since the origins of the profession. It is the independence, integrity and ethics of the accounting profession that uncovers and exposes the true villains perpetrating crimes against the U.S. economy and industry.
To be sure, the SEC proposal severely restricts the operation of business in this country in not only the public accounting profession but in private industry as well. The sweeping changes as proposed would more likely have a seriously detrimental effect on the quality of audits and business in the United States as a whole - the exact opposite effect that the SEC, investors or private industry would consider to be beneficial.
For fiscal 1999, the top ten U.S. public accounting firms only generated 19% of total revenues from management consulting services whereas 40% and 38% of revenues were generated from assurance services and tax compliance services, respectively. To suggest that the division of the public accounting field into "audit" and "non-audit" services would somehow prove beneficial is both a perverse and bizarre conclusion. If such a proposal were approved the likely result would be that the quality of all services provided to industry by the public accounting profession would be seriously degraded through attrition within the profession as well as the ability to attract new and promising talent. Such results would likely make the public accounting profession less respectable to the public, investors and other users of financial statements. It is exactly this type of authoritarian regulation that could potentially thrust our currently world-leading economy into the depths of recession.
This unwarranted action certainly has me curious as to certain points. My questions to the SEC are as follows:
1) Why has the SEC adopted a schedule designed to avoid congressional oversight and preclude meaningful public participation?
2) Why after the last 10 (ten) annual reports to Congress, has the SEC made no mention of any concerns whatsoever regarding the scope of services issue, yet all of the sudden, in the eleventh hour of our country's current administration tried to force this very restrictive, radical and unnecessary legislation?
I appreciate your sincere consideration of the points I have raised and hope that my comments have served as a voice of reason. I welcome your response to my comments and hope that you will do what is right for not only the public accounting industry, but also the United States as well.
Joseph M. Boswell
Certified Public Accountant
2834 Lee Willa Drive, Jackson, Michigan 49203 Telephone: (517) 787-6503