From: RONCAL@aol.com
Sent: Friday, January 25, 2002 8:48 PM
To: rule-comments@sec.gov
Subject: Independence and Auditors
To the SEC:

As an accountant (CPA candidate) and investor, I fully agree with the former 
SEC chairman Arthur Leavitt. There must be a greater level of independence for 
the auditors. While it is well know the accounting/auditing profession has had 
some difficult years with firms like Laventhal and Horwath for example, going 
out of business, the consulting part of an accounting firm must be made separate 
from the auditing function even to the point of splitting the firm. Investors 
must be able to rely on the auditor's opinion as to the validity and 
reasonableness of the financial statements.

Auditing the financial statements of a publicly traded company is only one 
facit of accounting. It is not dynamic and to be honest, a bit boring. However, 
it is needed and the AICPA and the SEC along with the finance industry of banks, 
venture capitalists, etc. need to get together to restore investor confidence. 
Far too many companies have had serious financial difficulties not properly 
disclosed by an audit. Therefore the investor suffers and in the long run, the 
national economy. 

The economy of the United States has done well due to the willingness of 
investors willing to take a rational and reasonable chance on investing in 
different industries. No one expects privately held funds to enable a Boeing 
or GM to build plants and make the multimillion dollar investments in new 
products. Same for the pharmaceutical industry with the immense cash needed 
to bring new and effective drugs to market. These take significant funds only 
available through many investors either directly or through mutual funds.

The AICPA needs to take responsibility and accountability for properly 
conducted audits the investors can rely on the financial information. This 
includes the disclosure in readable and understandable terms, most of the 
significant accounting practices of publicly traded firms. The SEC needs to 
review and change where needed the procedures and disclosures from both 
management and auditors. 

No more Enrons, Waste Manangements, Boston Markets, etc. This is needed 
otherwise the investor just may pack up his checkbook and find better ways 
to use those funds.

I would also like some type of legislature that would make it a crime for 
management to allow such practices that have caused this scandal. We all can 
realize that both greed and power are great incentives to "cook the books." 
Maybe a review of PBS's 4 hour segment on "Surviving the 90's" (?) with 
Hedrick Smith may be required of all managers of publicly traded companies as 
should the recent PBS 1 hour on the dot com mess.

One thing must be remembered though. I don't think any audit will ever be able 
to detect internal fraud when there is considerable collusion. I take this from 
an Institute of Internal Auditors video/movie I saw during the mid 80s where 
various members of a large insurance company's management (marketing and 
information systems) created phony customers even to the point of setting up 
a "boiler room" and postal boxes to handle auditor's confirmations.

An audit of a company will not uncover "under the table" bribery of executives 
receiving payments from another company. This is true for either an independent 
auditor or company internal auditor. As the Director of Internal Audit of a 
privately held corporation, I was hauled over the coals when an audit of the 
purchasing department did not uncover payments made by vendors to the various 
purchasing managers and director. We did find too many questionable management 
practices, but there was no money trail and the director left with the 
vendors money.

P. Ronald Callihan, MBA, CIA