Author: "Skip Felts" Date: 09/22/2000 12:20 PM Subject: S7-13-00 We are a local firm in Washington that performs audits as well as other accounting services, tax compliance and various business consulting services. We pride ourselves on being able to provide our clients with the broad range of services that they need to run their businesses efficiently and profitably. Additionally, we are a member of BKR International, an organization of independent member firms worldwide. Even though we no longer do audit work for publicly held companies we strongly believe that this scope of services rule must not be allowed to go forward. There are too many problems that would develop. The most dangerous impact for the accounting profession is the likely prospect that the proposed rule would set a precedent for other regulators. Even accounting firms like us that do not audit SEC registrants could be impacted by these new rules. The proposed SEC rule would be viewed as the new model by state boards of accountancy, as well as federal (e.g., banking and ERISA) and other regulators. These new proposed SEC rules could influence the regulatory approach to auditor independence outside the United States as well. This could, then, have an adverse effect on the firms in our organization and reduce our ability to provide accounting and consulting services and to compete in the global economy. The SEC claims its proposed rule "would not affect tax-related services" to audit clients. However, it would ban acting as an advocate for an audit client, or providing expert services in administrative proceedings, thus (except in preparing returns) potentially prohibiting CPAs from representing audit clients before the IRS. Regional alliances or cooperative agreements between accounting firms could result in each firm being required to be independent of each other firm's attest clients. Moreover, the restrictions would extend to any alliance or cooperative agreement with overseas accounting and other firms (such as legal service providers). If the rule is adopted, there will be a negative effect on recruiting and retention of the best talent. The best audit professionals will not want to be at a firm where 25% - 40% of the market is "off-limits," and the same is true for the best non-audit professionals. Similarly, the best and brightest students will not be drawn to firms with a limit on upward opportunities. The "audit-only" firms endorsed by the proposal will have difficulty attracting the necessary talent both from accounting programs and from information technology programs, because the best talent will be drawn toward industries with broader career opportunities. The SEC has needlessly tied its popular and long-overdue modernization of family disqualification rules-depression-era rules that discriminate against working women and two-career families-to its far more controversial scope of services initiative. Modernization of the financial-interest standards can and should occur on an expedited basis, independent of the scope of services initiative. The scope of services initiative requires more time for fact finding and analysis than provided by the SEC's time frame. This unwarranted and intrusive proposed regulation must be carved out of the SEC's Proposed Rule Governing Auditor Independence.