RADIN, GLASS & CO., LLP
360 LEXINGTON AVENUE
NEW YORK, NY 10017
212-557-7507

August 24, 2000
Security and Exchange Commission
Washington, DC

Proposal on auditor independence
S7-13-00
MSWord

Gentlemen:

I have been an accountant practicing before the Securities and Exchange Commission for forty years, including being a partner of my present 20 person firm and formerly a partner of a large international firm. Based on all that I have seen, I believe that "Independence" is a concept that has little applicability to the twenty-first century. The courts, the AICPA, and the SEC have created an overpowering structure to insure that the auditing firms perform as impartial an audit as they can. The proposed rules add a large level of complexity, with detailed and questionable rules and little or no evidence that such rules accomplish an improvement in the audit process.

In general, the concepts, from the proposed Rule 210.2-01(b), are the following:

• "...has a mutual or conflicting interest with the audit client..." - Of course, all auditors and clients have mutual and conflicting interests as a result of the audit process. Wanting the client to succeed is a mutual interest; fee issues are conflicting interests. Trying to define whatever other "mutual or conflicting interests" may exist does not seem to me to improve the audit process.

• "...audits the accountants own work..." - this is a concept that has been around for a long time. In view of the checks that are now required by the SEC Practice Section it is not clear to me as to why, "auditing your own work" is inappropriate. Many of the complex computations required in a financial statement can only be done by a professional knowledgeable in that particular area. Why two levels of expertise are needed is unclear. For example, the entire area of bookkeeping for a client resulting in the auditor's lack of independence does not seem to have any but historical relevance.

• "...functions as management or an employee of the audit client..." - While this concept has relevance as I will indicate below, it has gone far beyond where logic would make it appropriate. I would agree that the auditor should be different from management. However, many of the functions of management, i.e. negotiation of contracts, determinations of some policies, evaluations of acquisitions, evaluations of staffing, internal audit, etc. could be, and are, performed by the outside auditors.

• "...acts as an advocate for the audit client..." - The auditor should be an advocate for the client. The client pays his fees. How could I be anything but an advocate for the hand that feeds me? Advocacy by outside auditors has a long history: representation before taxing authority, tax consulting, supporting reporting positions before the SEC and other regulatory agencies, negotiations during acquisitions and with financing institutions, etc. I do not know why advocacy should impair independence.

The problem of writing independence rules is exacerbated by the need to write a "one size fits all" approach. In my small firm I could ban any investment in a client, direct or indirect. The major independence issue would be the size of the client in proportion to our total size. Rules that are important for a large international firm would not apply to me. Conversely, what is appropriate for my firm would not work for a large firm.

I have dealt with the legal profession throughout my career, with lawyers as counsel to public companies without the above rules. In spite of their lack of "independence", I have consistently found such lawyers' expression of their professional opinion to be just as "independent" as the auditors, in spite of the non-existence of the above rules governing their profession.

My staff now has to learn GAAP, GAS, the Internal Revenue Code and some state and local taxes in the two or three years they are with me. To require learning independence rules, which will have no relevance once they go into industry and do not directly affect the audit process, appears excessive and counter productive.

I do believe that some type of guidelines relating to independence would be appropriate, but should vary materially from firm to firm. What would be the appropriate rule for my firm with 20 professionals and 10 public companies really bears no relationship to that required by one of the "Big Five." Accordingly, to let the market determine the appropriate type of independence for each firm, I propose the following:

• Each firm should write its own independence standard.

• Such standard must be posted on the firm's web site.

• Such standard, and the firm's compliance therewith, should be discussed annually with the audit committee of the board of directors of each public company.

• As part of the inspection policy, the compliance with the firm's policy should be tested each year.

With this information available to the marketplace and the audit committee, auditing firms would have to write rules that made sense for them, could be enforced and evaluated. The requirement that the audit committee evaluate the independence of the auditing firm would allow the committees to use their business judgement, working with the auditing firms, to make rational, appropriate decisions.

Thank you for this opportunity to express my thoughts on this important topic.

Very truly yours,

Arthur J. Radin