FPA Government Relations Office
1615 L Street, N.W., Suite 650
Washington, D.C. 20036
Web site: www.fpanet.org
By Electronic Mail
August 31, 2000
Jonathan G. Katz
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549-0609
Re: Release Nos. 33-7870; 34-42994; 35-27913; IC 24549; IA-1884; File No. S7-13-00; Revision of the Commission's Auditor Independence Requirements
Dear Mr. Katz:
The Financial Planning Association ("FPA")1 offers comment on the above proposal. Most of our 29,700 members provide retirement planning, asset management, and related financial planning services to more than 2 million American families and small business clients. Comprehensive financial planning and the related step of developing investment recommendations rely indirectly on independent, objective analysis of a company's financials. FPA generally supports the proposed Release so that the attest function in this critical area continues to maintain the public trust, and so that financial planners can continue to rely with confidence on the accuracy of certified financial statements.
We have observed the growing debate surrounding the proposed rule, and have examined many of the comment letters filed electronically with the Securities and Exchange Commission (the "Commission" or "SEC"). Similar to the views expressed by the Commission and others, we are troubled by the growing conflict that arises from the broadening scope of consulting arrangements by accounting firms with publicly traded companies. Existing independence standards for those firms concurrently providing certified audits and certain consulting services to the same clients result in a heightened threat to the integrity of the audit.
We note that many of the comment letters opposing the Release complain about a solution in search of a problem. Whether a real problem or not, American families already burdened by a poor savings rate and scrambling in mid-life to secure their own financial independence at retirement cannot afford to see a grand experiment in multi-faceted consulting services jeopardize the integrity of the world's most efficient securities markets.
With today's technology advancements and rapid consolidation of financial services aiding the consulting boom, independence of the attest function must be maintained and clarified in gray areas. One such situation where FPA supports some flexibility is in permitting principals in an accounting firm who are not directly involved in an audit, as well as their spouses and other dependents, to hold mutual fund shares of a fund that owns shares of the company that is being audited.
We are sympathetic to the fact that accountants, by their very training, are qualified to provide many associated services and are attempting to meet the needs of their clients. We do not object to CPAs providing consulting services in areas where they are qualified, having firsthand knowledge of their pre-eminent training and experience through CPAs affiliated directly with our own organization. Approximately 16 percent of Certified Financial Planner licensees are CPAs who likewise recognize the need to provide comprehensive financial advice to their individual clients. While FPA supports diversity in client services offered by a firm (such was the marketplace impetus 30 years ago that led to the development of comprehensive financial planning), expansion of such services nonetheless must be considered in the broader context of investor protection. Beyond regulatory requirements, the success of any reputable profession relies on placing the client first and the public perception of the trust placed in their adviser. Certified Financial Planner practitioners, like CPAs and others with fiduciary responsibilities, owe a duty of loyalty first and foremost to the client. We do not believe such a duty can be met where such loyalties of the accounting firm are clearly divided.
In summary, FPA believes that the independence, integrity and objectivity of the CPA is the very basis of the high regard in which the accounting profession is held, and contributes greatly to the public perception that gives value and credibility to audited financials. The trust and confidence accorded by the investor, who feels he or she is protected by the absolute independence of the auditor, and from professionals such as financial planners, lenders, estate planning attorneys and others, is eroded by any compromise, or taint of compromise, of auditor independence. Preserving this standard is not any more burdensome to the accounting profession than it is for the legal profession, where either party in a prospective client engagement may be required under ethical obligations to decline representation.
We also concur with the SEC's observation in the Release that Congress originally granted the accounting profession an important public trust when it determined that CPAs should provide auditing services in lieu of a government audit agency. The integrity of the attest function must be preserved, and we urge the Commission not to compromise on this critical point. And we strongly encourage the SEC to work through the current debate and to resolve this issue amicably with the AICPA and the state boards of accountancy.
We would be pleased to respond to any questions in connection with these comments. Please do not hesitate to contact the undersigned at 202.626.8770.
Duane R. Thompson
Director of Government Relations
1 The Financial Planning Association is the largest organization in the United States representing financial planners and affiliated firms. FPA was formed on January 1, 2000, as a result of the combination of two existing non-profit financial planning associations, the Institute of Certified Financial Planners and the International Association for Financial Planning. FPA maintains administrative offices in Atlanta and Denver, and a government relations office in Washington, D.C.