RAYMOND G. BRUNE, CPA
301 Fox Hollow Woods Dr.
Ballwin, MO 63021
I am writing to you about an unwarranted and intrusive proposed regulation being considered by the Securities and Exchange Commission. This proposal by the SEC would establish new rules for determining auditor independence, and would prohibit firms from rendering non-audit services to their audit clients.
I feel this proposal is without facts or evidence. There is no substantial evidence that non-audit services have compromised audit quality or auditor independence. On the contrary, an SEC panel on Audit Effectiveness concluded that in numerous instances, non-audit services contributed to a more effective audit.
Most dangerous for the accounting profession is the likely prospect that the proposal would set a precedent and could be used as a model by state boards of accountancy as well as federal (e.g. banks, ERISA, HUD) and other regulators. This could have dramatic impact on all accounting firms, even those without any SEC registered clients.
This proposal would also have a negative impact on CPA's in industry. It would force clients to choose accounting firms either as auditors or as providers of other services, but the same firm could not build a relationship and perform both functions. The proposal could even impact an auditing firm from providing expert services in administrative proceedings prohibiting CPA's from representing their audit clients before the IRS.
The proposed rule would effect accounting firms from entering into joint ventures or partnerships, since the firm's independence could be impaired as a result of the activities of the related parties. Any entity that the accounting firm has a valuable business relationship with could be viewed as an affiliate of the firm. This could have an impact on especially small firms that sometimes have cooperative agreements with other accounting firms, requiring them to be independent of each other's audit clients. The proposal could even undermine auditor independence by making firms dependent on audit fees, which would be contrary to the public interest.
If this proposal is adopted, it could have far-reaching effects on the accounting industry. Firms could become more specialized by becoming strictly audit firms, or performing only other non-audit services. This could also have an effect on firms getting the most qualified applicants, making the applicants choose between audit firms or non-audit firms. It may also hinder the creativity of staff members whom, while performing audit procedures, discover consulting needs for the client, but would not be able to proceed to help the client without referring to a competitor firm.
In conclusion, the SEC's proposal to restrict services offered by accounting firms represents a fundamental restructuring of a profession that has successfully given investors reliable independent data for the past century. This proposal would allow a government agency to dictate standards to an industry that has successfully monitored its own members for numerous years, and is recognized as a respectable and reliable profession. The SEC has no jurisdiction to tell accounting firms what services they can provide for their clients. This proposed rule must not be allowed to go forward.
Raymond Brune, CPA