September 20, 2000
Mr. Arthur Levitt
C/O Jonathon G. Katz, Secretary
Securities & Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609
RE: Proposed Rule S7-13-00 Revision of the Commission's Auditor Independence Requirements
Dear Chairman Levitt,
The Maryland Association of CPAs representing 10,000 Certified Public Accountants and approximately 4,000 CPA firms (ranging in size from 1 practitioner to large international firms) strongly opposes your proposed rule to change the auditor independence requirements.
We oppose the rule for several reasons:
1) There has been no demonstration or evidence of public damage or outcry to justify the draconian dissection of the CPA Profession that will be caused by prohibiting CPA firms from providing non-audit services to clients that they perform audits for. There have been no documented audit failures that have resulted from CPA firms providing non-audit services to audit clients. In fact the O'Malley Panel of the Public Oversight Board found that non-audit services actually increased audit effectiveness in 25% of the cases;
2) The proposed rule ignores all of the findings and conclusions of joint SEC-American Institute of CPAs independent oversight boards (Public Oversight Board & Independent Standards Board) and completely circumvents the CPA Profession's 100 year record of successful self-regulation; and
3) The proposed rule has significant unintended consequences that will potentially impact every CPA firm in the country as this "new" definition and standard of auditor independence ripples down through all of the other regulatory bodies that govern the CPA profession (State Boards of Public Accountancy, Department of Labor, Housing & Urban Development, Government Accounting Office, etc).
Therefore, we ask that the SEC stop the implementation of the proposed rule and convene the appropriate oversight boards to complete the task of modernizing the auditor independence standards.
The CPA profession recognizes the changes in both the profession and the "New Economy" warrant a fresh look at these rules, however, the unilateral enactment of a rule by the SEC which will effectively cause a significant divestiture of the entire CPA Profession is unwarranted and requires much more time to study. We believe there are many other options that do not have the devastating effect that the proposed rule would impose on the CPA Profession, which need to be explored further.
First, there should be a closer look at the recommendations of the Public Oversight Board (POB) and the Independence Standards Board (ISB), which propose more disclosure in financial statements, more oversight by Audit Committees, and more research into services that might have a potential conflict for the auditors. Secondly, we believe that effective "firewalls" can be established between audit services and non-audit services in much the same way as the services among the de-regulated financial service industries were separated in the public interest (banking, insurance, and brokerage). Without consideration of these options and the involvement of current oversight boards we do not see how the SEC can move on this proposed rule.
We appreciate the opportunity to submit these comments.
Maryland Association of Certified Public Accountants
|Thomas J. Lantz, Sr., CPA
| J. Thomas Hood, III, CPA