September 22, 2000
Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549-0609
Dear Secretary Katz:
As a practicing professional in a CPA firm, I am seeking your help in stopping the rulemaking initiative governing auditor independence released on June 27, 2000. Simply stated, this proposal is an unfair attempt to prohibit auditors from performing a broad array of non-audit services that their clients find valuable.
In addition, because other regulators are likely to follow the SEC's lead, the proposal could ultimately apply to audits of privately held companies as well. This action will inevitably increase the cost of doing business for thousands of CPA firms and hundreds of thousands of small businesses.
The main adverse consequences of the proposed rules include:
The proposed rules governing non-audit services are the most controversial of the group. They are based on a vague set of principles that appear designed more to achieve independence in appearance than independence in fact. In addition, there is a "catch-all" provision allowing the SEC significant latitude in deciding, after the fact, that a particular relationship involves a prohibited service.
Your organization not only provides a laundry list of prohibited services, but also expands the definition of affiliate from the viewpoint of both the accounting firm and the client, so as to substantially increase the number and types of relationships that would be subject to independence restrictions. This element of the proposal would restrict the types of alliances that are a necessary element of the new economy and could have a significantly damaging effect on the formation of any new alliances in the future, to the detriment of the parties to the alliances as well as to the stockholders of the audit clients.
Notwithstanding the incredible complexity and profound consequences of the proposal, however, your organization has set an extremely short deadline for receiving comments - September 25, 2000.
I urge you to take action and reconsider this proposed change to help protect small businesses and CPA firms from a change, which would alter an entire profession.
GAITHER RUTHERFORD & CO., llp
Steven F. Farrell, CPA ABV