Response to the SEC Proposed Rules on Independence
As both a CPA and an investor, I strongly support the Commission's effort to strengthen its rules with regard to auditor's independence. Auditor's independence is the keystone of the public accounting profession. If the audit report is to mean anything of value, we must assure that nothing weakens its structure.
Non audit services:
In all situations, independence should take precedence over a CPA firm's business considerations. Therefore I support the Commission's proposed rules to limit the types of nonaudit services a firm can perform for its audit clients. In those cases where a firm performs permitted nonaudit services, the client should disclose, in the notes to the financial statements, the nature of the services and the cost of those services. In addition, the firms should disclose, in the audit report, the nature of the services and the revenues from those services.
Financial and employment relationships:
Although I support loosening the rules related to financial and employment relationships for some close relatives, I do not support the Commission's proposal to loosen rules for spouses, dependent persons, and the firms themselves. From past experience, we know that firms have had difficulty implementing internal controls in complying with the current rules. If the rules allow for more flexibility and exceptions, I would question ability of audit firms to conform to broader standards.
Paula Morris, MPA, CPA
Assistant Professor of Accounting
Kennesaw State University