September 22, 2000
Mr. Johnathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609
RE: Reference File No. S7-13-00
Dear Mr. Katz:
I am writing to you to voice my opinion concerning the Proposed Rule for Revision of the Commission's Auditor Independence Requirements recently issued by the Securities and Exchange Commission. Based on the following points, I would respectfully recommend that the proposed rule NOT be adopted as proposed:
1. It is my understanding that the SEC has ignored the conclusion of the current Panel on Audit Effectiveness of the Public Oversight Board, a panel that was formed at the request of the SEC. The panel concluded that, "both the profession and the quality of audits are fundamentally sound." The panel said it could find no evidence that the provision of non-audit services has hurt audit quality. On the contrary, it concluded that in numerous instances non-audit services contributed to a more effective audit.
2. It is also my understanding that the SEC has based its decision to move forward with this rule prohibiting non-audit services without facts or evidence. Even the SEC admits that there is no empirical evidence that non-audit services have compromised audit quality or auditor independence, nor ever caused an audit failure. None of the studies or reports cited by the SEC concluded that the scope of services impaired audit effectiveness, or that an exclusionary ban was necessary or appropriate.
3.It is my belief that the SEC proposal is a bad idea, since it would restrict public companies' freedom of choice when seeking outside professional services. The SEC would force public companies to constantly choose whether to hire a firm solely as its auditor or solely as a provider of other services. In fact, under the proposed new rules, a public company might be compelled to dismiss an audit firm that has done consistently good work in order to obtain services from the auditor's non-audit colleagues.
4. It is also my belief that the SEC has, in a rush to regulate:
a. Pre-empted the work of the ISB, set up three years ago at the initiative of the SEC to develop a new conceptual framework for auditor independence and appropriate implementing standards.
b. Not allowed time for important recent reforms to work, including new disclosures and audit committee requirements adopted by the ISB, the NYSE, the NASD, the American Stock Exchange and the SEC.
c. Limited to 75 days the period for commenting on a far-reaching and highly complex proposal, including responding to more than 400 questions, collecting and analyzing a great deal of data and considering alternative concepts for regulating auditor independence.
The SEC's proposal to restrict the services offered by accounting firms represents a fundamental restructuring of a profession that has successfully given investors the reliable, independent data they need for the past century. A decision by a government agency to tell some business organizations what services they may offer and to tell other businesses from whom they can buy services is an extraordinary economic intervention without basis.
Mark B. Holder, CPA
Vice President & Cashier
Oak Ridge, TN