September 21, 2000
Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609
RE: SEC Proposed Regulations CPA Non-Audit Services
File no. S7-13-00
This letter is in response to SEC proposed regulations on the performance of non-audit services by a company's independent auditor. Comments and viewpoints expressed are mine and do not necessarily represent the viewpoint of the Dow Hotel Company, LLC.
The concern that audit independence could be impacted by the revenues generated from non-audit services is valid. The disagreement here is three-fold. First, the AICPA through both the rules and regulations of firms and individuals in regards to Generally Accepted Auditing Standards ("GAAS") and member rules specifically address the issue of independence in the audit process. In fact, we go beyond just the appearance of conflict of interest by severely limiting any financial association with an audit client. Secondly, the Panel on Audit Effectiveness demonstrated that the concern is unwarranted and may in fact serve to enhance the audit process and effectiveness. Third, there is presently sufficient safeguards and enforcement action available under current SEC and AICPA regulations.
Choosing an auditor and/or provider for other services is the responsibility of the company through its board of directors. These individuals have a fiduciary responsibility to the stakeholders of the company. In discharging this duty, the directors choose that entity that they believe will perform the needed task better than another. Many times the firm that performs the audit service can perform this non-audit service better and more cost effectively than an outsider due to having a greater knowledge of the company. Because of this knowledge data base, the non-attest service can help improve area that may eventually lead to a control weakeness.
The AICPA has a responsibility to monitor firms through the peer review process. This process ensures that the firms and its members are adhering to GAAS. A firm and its members have a great stake in exceeding independence requirements because that is a core competency of being a CPA. Also, in today's litigious society, a failure in this area can be exceedingly costly.
A point of interest is that nowhere in the proposed regulations does it affect the use of legal counsel and its services, nor other related party transactions. In fact, only related party transactions need to be reported. So, at the most, similar reporting of attest and non-attest services could be reported.
From my viewpoint and perspective I do not believe that the SEC has the statutory authority to directly make this proposed rule. It is a company that has the responsibility to choose its auditor and those with whom it chooses to perform other services. The SEC is attempting to put itself into the boardroom, a place it does not belong. This action would affect many firms and businesses and I must question the legality of government intrusion into business operations.
Lastly, any SEC intervention or rules should help investors and add value. This proposal does neither and only serves to address a perceived issue. What makes this proposal even more unneeded is that there has not been any audit failure from non-audit services provided and that the present SEC rules and enforcement action on auditors is more than sufficient to address any failures. The SEC needs to devote it energies to real issues.
I am not in public practice, nor am I presently associated with a public company. This does not mean that I am not concerned about the SEC proposed action as to ramifications to all business entities and the profession to which I am proud to be part of. The CPAs I know and associate with all have the highest professional and value beliefs. We would never be swayed to act in a manner that does not meet or exceed the AICPA rules and regulations. I have to believe that all my professional associates follow the same belief and would not dare to compromise our basic core of being a CPA.
Thank you for allowing me to express my viewpoint on this very important issue.
Louis W. Sanford, CPA
VP Finance and Corporate Controller