From: JOHNCPA4411@AOL.COM (John Trapani, CPA)
The Securities and Exchange Commission
|
Re: File No. S7-13-00 Release No. 34-42994 RIN 3235-AH91 |
By E-mail: rule-comments@sec.gov
August 28, 2000
Attachment to this EMAIL: Excel 97 Format
SEC Release 34-42994 JOHNCPA4411.xls
Attachment to a separate EMAIL being sent, WinWord 97 Format
SEC Release 34-42994 response A JOHNCPA4411.doc
A formatted copy of this email with a table at end that is most of the "Proposal Analysis" worksheet from the Excel 97 file above (SEC Release 34-42994 JOHNCPA4411.xls)
Revision of the Commission's Auditor Independence Requirements
Thank you for the opportunity to respond to this important proposal. I have been involved in Public Accounting since June 1967, when I was hired by a then local accounting firm. I worked there for 7.25 years and then opened my own firms over the next 10 years. For the last 16 years I have been a sole practitioner with assistance from a part-time CPA and an administrative staff person. I stopped performing audit work in 1984, although I was requested to return to my first employer in 1989 to teach an audit class of my own design to sixty of their personnel.
I am very impressed with the analysis in the executive summary of the Release due to its overall inclusion of most of the changes that I have observed over the last thirty odd years. However, it does not note what may be the most important changes.
Due to my limited amount of time available, as a sole owner of a small CPA firm, I did not read the whole document. However, as my comments are of a limited nature and generally supportive of the concerns that you raise in the executive summary, I do not believe that it is absolutely necessary that I read the whole document.
In Section II C 2 (c)(i) "Auditor Vulnerability to Economic Pressures From Audit Clients" of your Release you state:
"For example, an audit firm may agree to perform the audit of a start-up company for fees significantly below market rates for a few years, in anticipation of "recouping" such an investment in the client through a subsequent initial public offering or performance of consulting services.
"We also have concerns about the effect on an accounting firm's internal culture when the firm is trying to be an audit client's vendor of choice. As non-audit services become more important to a firm, that firm may care less about auditing and more about expanding its service lines. The factors that drive a high quality audit, including the core values of the auditing profession, may diminish in importance to the firm, as will the influence of those firm members who exemplified those core values in their own professional careers."
For many years, in the Sixties, Seventies and Eighties, it was my anecdotal observation that the then Big 8 firms were involved in raiding clients from each other in order to expand their practices. To affect this goal they continually reduced the cost of the audit in order to increase the number of audit clients they had. Soon, substantially all of the available SEC filing clients were being serviced by the Big 8 firms. So the Big 8 firms simply started consuming each other to become the Big 5.
One would assume that by the Big 5 controlling the market, they would increase the audit fees. But remember there are still qualified CPA firms available to perform the MCS work that are not part of the Big 5. And there are other consulting firms that also compete for the MCS services.
Audits became fixed bid situations. Bids were often based on excluding any allowance for contingencies. It was difficult to later modify the fee based on unforeseen situations that arose. (Of course this reduced the number of unforeseen situations that arose.) On the other hand, MCS engagements were often redefined, thereby creating opportunities to recoup low initial bids for the MCS work and thus increasing overall firm profitability.
The rationale seemed to be that the MCS services were so lucrative that, it was worth giving the audit away to get the MCS services. Now, I see by your statistics, that large, but shrinking, percentages of the audit clients (83.8 % in 1983 to 74.3% in 1999) are not provided MCS services by the firms (The percentage was at a high point in 1993 from a low point in 1988 of 75.4%). However, if by unsaid agreements, the Big 5 firms control who gets the MCS services for their clients, among their competitors, as a group they still control the market as a whole. Their appetite for the clients is served and their limitation of "outside the club of 5" firms getting the work is limited, reducing their need to worry about vast numbers of competitors. Each of them only has to worry about four other firms' marketing activities. Additionally, the cultures of the firms may be such that each one has less than four other competitors. Looking at the reduction from 8 to 5 large firms, the combinations that occurred appear, to me, to be the only natural choices that could have been made.
In fact this intimidates the non-Big 5 firms from even competing effectively and makes it more likely that many of the potential lower tier firms with sizable practices will be consumed by the Big 5, increasing their concentration even further. The firm I worked for in the 60's and 70's was acquired in the 90's after rising to a second tier firm with a national reputation.
In Section II C 2 (c)(ii), "Independence Issues inherent in the Nature of Certain Non-audit Services" you question any non-audit work as being potentially risky. In my proposal, later, I ignore the following extension of what you seem to be talking about. The major conflict where an auditor is questioning his own (the firms') decisions and recommendations is in the tax area. Firms have expertise that is put at the disposal of the client. Advice, decisions in preparation of compliance reports, strategies developed to minimize taxes are all parts of the CPA firms' activities. In fact, some firms seek out unique solutions and then "sell" them to clients as products. Who evaluates the risk of those products? The auditors can't look to the tax department for advice; the tax department developed the product! So it is not just a matter of a conflict, it is also a matter being cut off from the availability of competent advice and expertise to evaluate tax decisions and risks.
I have not performed any part of an audit since 1984. I have no intention of re-entering the audit arena. My comments are due to my desire to see the ethical standards of my profession maintained and returned to formerly high personal standards in addition to the public's and SEC's standards.
A recent announcement by the AICPA stated that for the first time in the history of the organization, the number of AICPA members working in CPA type firms had dropped below 50%. It is obvious that Big 5 firms have significant "clout" over the operations of and positions taken by the AICPA. Therefore, can either I or the SEC look to the AICPA as a valid voice for the profession in matters such as this where they are supposed to be dedicated to keeping its membership watching out for the investment viability of publicly-held firms.
My main reason for even being interested in responding has to do with an article in The Practicing CPA, for August 2000, published by the AICPA for smaller firms. In it they use "fear" statements such as "A Limit on Service Offerings," and "The Independence Bogeyman." Finally, they demand a "A call to arms." Their "Call to Arms" section states:
"Warding off the regulatory burdens that unfairly restrict the growth opportunities of local, independent firms is in the best interests of PCPS members." (Emphasis added.)
I am amazed at their blatant attempts to manipulate me to participate in support of the objectives of the Big 5 firms with a veiled threat that the SEC's rules are going to affect my practice. The AICPA has done very little over the years of any consequence that has increased my ability to compete, on a level playing field, for clients against the large firms. I will not simply support their Big 5 agenda based on a remote outcome for my practice.
Proposal
I have a proposal for you to consider that is intended to promote independence and create renewed competition in the area of servicing SEC clients' need for audits. I believe this proposal is complementary to your proposals, not a replacement.
The intended results:
I appreciate this opportunity to contribute my thoughts on this matter and provide you with the net results of my thirty years working and observing the continuing decay of my profession's standards and focus. Removing the "commission receipt prohibition" has changed many CPA's into sellers of product instead of independent advisers. I believe that has changed the culture of the profession. I hear it at classes and conferences. The discussion is not how to analyze and understand, but rather on how to sell a product. That kind of approach has got to affect the audit staff.
The attached Excel 97 file contains the statistical data from your release as contained on the Web site. On Proposal Analysis, I have added some additional analyses of the data that, I believe supports my conclusions and validate some of my anecdotal observations. The major portion of the analysis of your data that is the basis of my proposals is included as a separate email attachment version of this email in a table at the end of the email text. It is too bad that the data does not extend back to the early Seventies when these changes started to occur, in my judgement.
Very Truly yours,
/S/ John Trapani, CPA
Member of the AICPA &
California Society of CPA's
From: SEC Release 34-42994.xls. Proposal Analysis - By John Trapani, CPA
Additional Computations | ||||||||||
Proposed Limitations and Affects on Historical Results | ||||||||||
A&A |
150% |
60% |
150% of Tax Service Revenue | |||||||
Tax |
100% |
40% |
Variables are in yellow (gray) cells - all computations result from these variables | |||||||
Total |
250% |
100% |
||||||||
(Example) |
||||||||||
Total |
100,000 |
|||||||||
A&A / Tax Services |
75,000 |
25% of Total Revenue for MCS | ||||||||
A&A |
45,000 |
45% |
||||||||
Tax |
30,000 |
30% |
67% |
of Audit services |
||||||
MCS & Other |
25,000 |
25% |
56% |
of Audit services |
||||||
Total |
100,000 |
100% |
||||||||
1999 |
1998 |
1997 |
1996 |
1995 |
1994 |
1993 | ||||
Actual Revenue |
||||||||||
A&A |
9,150 |
7,812 |
6,738 |
6,195 |
5,762 |
5,823 |
5,485 | |||
Tax |
5,764 |
4,871 |
4,110 |
3,477 |
2,968 |
2,673 |
2,714 | |||
MCS & Other |
15,702 |
13,234 |
9,618 |
7,633 |
6,321 |
4,796 |
3,856 | |||
Total |
30,616 |
25,917 |
20,466 |
17,305 |
15,051 |
13,292 |
12,055 | |||
Revenue limitation |
||||||||||
A&A - actual |
9,150 |
7,812 |
6,738 |
6,195 |
5,762 |
5,823 |
5,485 | |||
Tax - limited |
6,100 |
5,208 |
4,492 |
4,130 |
3,841 |
3,882 |
3,657 | |||
MCS & Other - limited |
3,389 |
2,893 |
2,496 |
2,294 |
2,134 |
2,157 |
2,031 | |||
Total firms' limited Revenue |
18,639 |
15,913 |
13,726 |
12,619 |
11,737 |
11,862 |
11,173 | |||
Limited total - percent of Actual |
61% |
61% |
67% |
73% |
78% |
89% |
93% | |||
Reductions due to limitation | ||||||||||
Tax |
-336 |
-337 |
-382 |
-653 |
-873 |
-1,209 |
-943 | |||
MCS & Other |
12,313 |
10,341 |
7,122 |
5,339 |
4,187 |
2,639 |
1,825 | |||
Total Reductions in Revenue |
11,977 |
10,004 |
6,740 |
4,686 |
3,314 |
1,430 |
882 | |||
Computed Total Fees Based on Actual "Tax" and "MCS" as "Driver" to determine Total Fees | ||||||||||
Tax |
19,213 |
16,237 |
13,700 |
11,590 |
9,893 |
8,910 |
9,047 | |||
MCS & Other |
62,808 |
52,936 |
38,472 |
30,532 |
25,284 |
19,184 |
15,424 | |||
Greater of "Tax" or "MCS & Other" |
62,808 |
52,936 |
38,472 |
30,532 |
25,284 |
19,184 |
15,424 | |||
A&A - Required |
28,264 |
23,821 |
17,312 |
13,739 |
11,378 |
8,633 |
6,941 | |||
Tax - Required |
18,842 |
15,881 |
11,542 |
9,160 |
7,585 |
5,755 |
4,627 | |||
MCS & Other - Actual |
15,702 |
13,234 |
9,618 |
7,633 |
6,321 |
4,796 |
3,856 | |||
Total Resulting Fees |
62,808 |
52,936 |
38,472 |
30,532 |
25,284 |
19,184 |
15,424 | |||
A&A - Short fall |
19,114 |
16,009 |
10,574 |
7,544 |
5,616 |
2,810 |
1,456 | |||
Tax - Short fall |
13,078 |
11,010 |
7,432 |
5,683 |
4,617 |
3,082 |
1,913 | |||
MCS & Other - no change |
0 |
0 |
0 |
0 |
0 |
0 |
0 | |||
Total |
32,192 |
27,019 |
18,006 |
13,227 |
10,233 |
5,892 |
3,369 | |||
Increase in Revenue needed to accept all actual MCS & Other engagements | ||||||||||
A&A |
208.9% |
204.9% |
156.9% |
121.8% |
97.5% |
48.3% |
26.5% | |||
Tax |
214.4% |
211.4% |
165.4% |
137.6% |
120.2% |
79.4% |
52.3% | |||
Reallocation of Total Actual Revenue Based on Proposed Limitations | ||||||||||
1999 |
1998 |
1997 |
1996 |
1995 |
1994 |
1993 | ||||
Actual Revenue |
||||||||||
A&A |
9,150 |
7,812 |
6,738 |
6,195 |
5,762 |
5,823 |
5,485 | |||
Tax |
5,764 |
4,871 |
4,110 |
3,477 |
2,968 |
2,673 |
2,714 | |||
MCS & Other |
15,702 |
13,234 |
9,618 |
7,633 |
6,321 |
4,796 |
3,856 | |||
Total |
30,616 |
25,917 |
20,466 |
17,305 |
15,051 |
13,292 |
12,055 | |||
Limitations |
||||||||||
A&A |
45% |
|||||||||
Tax |
30% |
|||||||||
MCS & Other |
25% |
|||||||||
Total |
100% |
|||||||||
A&A |
13,777 |
11,663 |
9,210 |
7,787 |
6,773 |
5,981 |
5,425 | |||
Tax |
9,185 |
7,775 |
6,140 |
5,192 |
4,515 |
3,988 |
3,617 | |||
MCS & Other |
7,654 |
6,479 |
5,117 |
4,326 |
3,763 |
3,323 |
3,014 | |||
Total |
30,616 |
25,917 |
20,467 |
17,305 |
15,051 |
13,292 |
12,056 | |||
Shift in Revenue |
||||||||||
A&A |
4,627 |
3,851 |
2,472 |
1,592 |
1,011 |
158 |
-60 | |||
Tax |
3,421 |
2,904 |
2,030 |
1,715 |
1,547 |
1,315 |
903 | |||
MCS & Other |
-8,048 |
-6,755 |
-4,501 |
-3,307 |
-2,558 |
-1,473 |
-842 | |||
Net |
0 |
0 |
1 |
0 |
0 |
0 |
1 | |||
Assumption based computations | ||||||||||
1993 |
1994 |
1995 |
1996 |
1997 |
1998 |
1999 | ||||
Actual Revenue |
||||||||||
A&A |
5,485 |
5,823 |
5,762 |
6,195 |
6,738 |
7,812 |
9,150 | |||
Tax |
2,714 |
2,673 |
2,968 |
3,477 |
4,110 |
4,871 |
5,764 | |||
MCS & Other |
3,856 |
4,796 |
6,321 |
7,633 |
9,618 |
13,234 |
15,702 | |||
Total |
12,055 |
13,292 |
15,051 |
17,305 |
20,466 |
25,917 |
30,616 | |||
Number of Audit Clients of Big 5 (Big 6/Big 8) Firms |
12,362 |
12,841 |
12,793 |
11,755 |
11,846 |
12,348 |
12,769 | |||
Percentage of SEC clients audited by Big 5 (Big 6/Big 8) Firms - -computed from Table 4 data |
77% |
77% |
77% |
77% |
77% |
77% |
77% | |||
Assumed total SEC Clients |
16,133 |
16,758 |
16,695 |
15,340 |
15,459 |
16,114 |
16,664 | |||
Change |
625 |
-63 |
-1,355 |
119 |
655 |
550 | ||||
Average Audit fee |
339,986 |
347,476 |
345,133 |
403,846 |
435,863 |
484,796 |
549,088 | |||
Percentage Increase Year-to-Year |
102% |
99% |
117% |
108% |
111% |
113% | ||||
Audit Fees for SEC Audit Clients of Big 5 (Big 6/Big 8) Firms with 0% MCS Fees |
83.8% |
82.6% |
81.8% |
77.8% |
78.1% |
73.6% |
74.3% | |||
Assumed MCS fees from Non-SEC clients |
4,596 |
4,810 |
4,713 |
4,820 |
5,262 |
5,750 |
6,798 | |||
SEC Client MCS fees |
-740 |
-14 |
1,608 |
2,813 |
4,356 |
7,484 |
8,904 | |||
Percentage of Audit Fees |
? |
? |
28% |
45% |
65% |
96% |
97% |
The Securities and Exchange Commission |
SEC Release 34-42994 | ||||||
Proposed Rule: |
|||||||
Revision of the Commission's Auditor Independence Requirements |
|||||||
Proposal | |||||||
By: John Trapani, CPA | |||||||
Estimated revenue by service line - SEC Data |
|||||||
A&A |
$9,150 |
$7,812 |
$6,738 |
$6,195 |
$5,762 |
$5,823 |
$5,485 |
Tax |
$5,764 |
$4,871 |
$4,110 |
$3,477 |
$2,968 |
$2,673 |
$2,714 |
MCS & Other |
$15,702 |
$13,234 |
$9,618 |
$7,633 |
$6,321 |
$4,796 |
$3,856 |
Annual growth rate of estimated U.S. revenues from 1993 to 1999 |
|||||||
A&A |
17.1% |
15.9% |
8.8% |
7.5% |
-1.0% |
6.2% |
|
Tax |
18.3% |
18.5% |
18.2% |
17.1% |
11.0% |
-1.5% |
|
MCS & Other |
18.6% |
37.6% |
26.0% |
20.8% |
31.8% |
24.4% |
|
Estimated percentage of audit revenue |
|||||||
A&A |
100% |
100% |
100% |
100% |
100% |
100% |
100% |
Tax |
63% |
62% |
61% |
56% |
52% |
46% |
49% |
MCS & Other |
172% |
169% |
143% |
123% |
110% |
82% |
70% |
# clients |
# firms |
Average number of SEC clients |
Average MCS fees from SEC clients to total fees |
Average MCS fees from SEC clients to total MCS fees |
Approximate Number of Total SEC Filers | ||
> 1000 |
5 |
2554 |
10.00% |
22.80% |
12770 |
77% | |
100 - 1000 |
3 |
314 |
1.00% |
3.60% |
942 |
6% | |
20 - 99 |
20 |
36 |
1.00% |
9.90% |
720 |
4% | |
19 - 3 |
258 |
6 |
0.90% |
7.40% |
1548 |
9% | |
2 |
167 |
2 |
0.50% |
3.30% |
334 |
2% | |
1 |
351 |
1 |
0.40% |
5.00% |
351 |
2% | |
16665 |
100% | ||||||
Proposal | |||||||
By: John Trapani, CPA | |||||||
Additional Computations |
|||||||
Proposed Limitations and Affects on Historical Results | |||||||
A&A |
150% |
60% |
150% of Tax Service Revenue | ||||
Tax |
100% |
40% |
Variables are in yellow cells - all computations result from these variables | ||||
Total |
250% |
100% |
|||||
(Example) |
|||||||
Total |
100,000 |
||||||
A&A / Tax Services |
75,000 |
25% of Total Revenue for MCS | |||||
A&A |
45,000 |
45% |
|||||
Tax |
30,000 |
30% |
67% |
of Audit services |
|||
MCS & Other |
25,000 |
25% |
56% |
of Audit services |
|||
Total |
100,000 |
100% |
|||||
1999 |
1998 |
1997 |
1996 |
1995 |
1994 |
1993 | |
Actual Revenue |
|||||||
A&A |
9,150 |
7,812 |
6,738 |
6,195 |
5,762 |
5,823 |
5,485 |
Tax |
5,764 |
4,871 |
4,110 |
3,477 |
2,968 |
2,673 |
2,714 |
MCS & Other |
15,702 |
13,234 |
9,618 |
7,633 |
6,321 |
4,796 |
3,856 |
Total |
30,616 |
25,917 |
20,466 |
17,305 |
15,051 |
13,292 |
12,055 |
Revenue limitation |
|||||||
A&A - actual |
9,150 |
7,812 |
6,738 |
6,195 |
5,762 |
5,823 |
5,485 |
Tax - limited |
6,100 |
5,208 |
4,492 |
4,130 |
3,841 |
3,882 |
3,657 |
MCS & Other - limited |
3,389 |
2,893 |
2,496 |
2,294 |
2,134 |
2,157 |
2,031 |
Total firms' limited Revenue |
18,639 |
15,913 |
13,726 |
12,619 |
11,737 |
11,862 |
11,173 |
Limited total - percent of Actual |
61% |
61% |
67% |
73% |
78% |
89% |
93% |
Reductions due to limitation | |||||||
Tax |
-336 |
-337 |
-382 |
-653 |
-873 |
-1,209 |
-943 |
MCS & Other |
12,313 |
10,341 |
7,122 |
5,339 |
4,187 |
2,639 |
1,825 |
Total Reductions in Revenue |
11,977 |
10,004 |
6,740 |
4,686 |
3,314 |
1,430 |
882 |
Computed Total Fees Based on Actual "Tax" and "MCS" as "Driver" to determine Total Fees | |||||||
Tax |
19,213 |
16,237 |
13,700 |
11,590 |
9,893 |
8,910 |
9,047 |
MCS & Other |
62,808 |
52,936 |
38,472 |
30,532 |
25,284 |
19,184 |
15,424 |
Greater of "Tax" or "MCS & Other" |
|||||||
62,808 |
52,936 |
38,472 |
30,532 |
25,284 |
19,184 |
15,424 | |
A&A - Required |
28,264 |
23,821 |
17,312 |
13,739 |
11,378 |
8,633 |
6,941 |
Tax - Required |
18,842 |
15,881 |
11,542 |
9,160 |
7,585 |
5,755 |
4,627 |
MCS & Other - Actual |
15,702 |
13,234 |
9,618 |
7,633 |
6,321 |
4,796 |
3,856 |
Total Resulting Fees |
62,808 |
52,936 |
38,472 |
30,532 |
25,284 |
19,184 |
15,424 |
A&A - Short fall |
19,114 |
16,009 |
10,574 |
7,544 |
5,616 |
2,810 |
1,456 |
Tax - Short fall |
13,078 |
11,010 |
7,432 |
5,683 |
4,617 |
3,082 |
1,913 |
MCS & Other - no change |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
Total |
32,192 |
27,019 |
18,006 |
13,227 |
10,233 |
5,892 |
3,369 |
Increase in Revenue needed to accept all actual MCS & Other engagements | |||||||
A&A |
208.9% |
204.9% |
156.9% |
121.8% |
97.5% |
48.3% |
26.5% |
Tax |
214.4% |
211.4% |
165.4% |
137.6% |
120.2% |
79.4% |
52.3% |
Reallocation of Total Actual Revenue Based on Proposed Limitations | |||||||
1999 |
1998 |
1997 |
1996 |
1995 |
1994 |
1993 | |
Actual Revenue |
|||||||
A&A |
9,150 |
7,812 |
6,738 |
6,195 |
5,762 |
5,823 |
5,485 |
Tax |
5,764 |
4,871 |
4,110 |
3,477 |
2,968 |
2,673 |
2,714 |
MCS & Other |
15,702 |
13,234 |
9,618 |
7,633 |
6,321 |
4,796 |
3,856 |
Total |
30,616 |
25,917 |
20,466 |
17,305 |
15,051 |
13,292 |
12,055 |
Limitations |
|||||||
A&A |
45% |
||||||
Tax |
30% |
||||||
MCS & Other |
25% |
||||||
Total |
100% |
||||||
A&A |
13,777 |
11,663 |
9,210 |
7,787 |
6,773 |
5,981 |
5,425 |
Tax |
9,185 |
7,775 |
6,140 |
5,192 |
4,515 |
3,988 |
3,617 |
MCS & Other |
7,654 |
6,479 |
5,117 |
4,326 |
3,763 |
3,323 |
3,014 |
Total |
30,616 |
25,917 |
20,467 |
17,305 |
15,051 |
13,292 |
12,056 |
Shift in Revenue |
|||||||
A&A |
4,627 |
3,851 |
2,472 |
1,592 |
1,011 |
158 |
-60 |
Tax |
3,421 |
2,904 |
2,030 |
1,715 |
1,547 |
1,315 |
903 |
MCS & Other |
-8,048 |
-6,755 |
-4,501 |
-3,307 |
-2,558 |
-1,473 |
-842 |
Net |
0 |
0 |
1 |
0 |
0 |
0 |
1 |
Assumption based computations | |||||||
1993 |
1994 |
1995 |
1996 |
1997 |
1998 |
1999 | |
Actual Revenue |
|||||||
A&A |
5,485 |
5,823 |
5,762 |
6,195 |
6,738 |
7,812 |
9,150 |
Tax |
2,714 |
2,673 |
2,968 |
3,477 |
4,110 |
4,871 |
5,764 |
MCS & Other |
3,856 |
4,796 |
6,321 |
7,633 |
9,618 |
13,234 |
15,702 |
Total |
12,055 |
13,292 |
15,051 |
17,305 |
20,466 |
25,917 |
30,616 |
Number of Audit Clients of Big 5 (Big 6/Big 8) Firms |
12,362 |
12,841 |
12,793 |
11,755 |
11,846 |
12,348 |
12,769 |
Percentage of SEC clients audited by Big 5 (Big 6/Big 8) Firms - -computed from Table 4 data |
77% |
77% |
77% |
77% |
77% |
77% |
77% |
Assumed total SEC Clients |
16,133 |
16,758 |
16,695 |
15,340 |
15,459 |
16,114 |
16,664 |
Change |
625 |
-63 |
-1,355 |
119 |
655 |
550 | |
Average Audit fee |
339,986 |
347,476 |
345,133 |
403,846 |
435,863 |
484,796 |
549,088 |
Percentage Increase Year-to-Year |
102% |
99% |
117% |
108% |
111% |
113% | |
Audit Fees for SEC Audit Clients of Big 5 (Big 6/Big 8) Firms with 0% MCS Fees |
83.8% |
82.6% |
81.8% |
77.8% |
78.1% |
73.6% |
74.3% |
Assumed MCS fees from Non-SEC clients |
4,596 |
4,810 |
4,713 |
4,820 |
5,262 |
5,750 |
6,798 |
SEC Client MCS fees |
-740 |
-14 |
1,608 |
2,813 |
4,356 |
7,484 |
8,904 |
Percentage of Audit Fees |
? |
? |
28% |
45% |
65% |
96% |
97% |
The Securities and Exchange Commission |
SEC Release 34-42994 | ||||||
Proposed Rule: |
|||||||
Revision of the Commission's Auditor Independence Requirements |
|||||||
17 CFR Parts 210 and 240 |
|||||||
[Release Nos. 33-7870; 34-42994; 35-27193; IC-24549; IA-1884; File No. S7-13-00] |
|||||||
RIN 3235-AH91 |
|||||||
Revision of the Commission's Auditor Independence Requirements |
|||||||
Table 1 | |||||||
Estimated U.S. Revenues for Big 5/Big 6 Public Accounting Firms | |||||||
Source: PAR | |||||||
1999 |
1998 |
1997 |
1996 |
1995 |
1994 |
1993 | |
Total |
$30,616 |
$25,917 |
$20,492 |
$17,305 |
$15,051 |
$13,291 |
$12,162 |
Estimated revenue mix by service line |
|||||||
A&A |
30% |
30% |
33% |
36% |
38% |
44% |
45% |
Tax |
19% |
19% |
20% |
20% |
20% |
20% |
22% |
MCS & Other |
51% |
51% |
47% |
44% |
42% |
36% |
32% |
Estimated revenue by service line |
|||||||
A&A |
$9,150 |
$7,812 |
$6,738 |
$6,195 |
$5,762 |
$5,823 |
$5,485 |
Tax |
$5,764 |
$4,871 |
$4,110 |
$3,477 |
$2,968 |
$2,673 |
$2,714 |
MCS & Other |
$15,702 |
$13,234 |
$9,618 |
$7,633 |
$6,321 |
$4,796 |
$3,856 |
Compound growth rate of estimated U.S. revenues from 1993 to 1999 |
|||||||
A&A |
9% |
||||||
Tax |
13% |
||||||
MCS & Other |
26% |
||||||
Information sources: |
|||||||
PAR - Public Accounting Report, "Special Supplement: Annual Survey of National Accounting Firms - 2000, March 31, 2000. | |||||||
Annual Reports to SECPS - Annual reports filed with the AICPA Division for CPA Firms SECPS member public accounting firms | |||||||
SECPS Reports - Reports prepared by the AICPA Division for CPA Firms |
The Securities and Exchange Commission |
SEC Release 34-42994 | ||||||||
Proposed Rule: |
|||||||||
Revision of the Commission's Auditor Independence Requirements |
|||||||||
17 CFR Parts 210 and 240 |
|||||||||
[Release Nos. 33-7870; 34-42994; 35-27193; IC-24549; IA-1884; File No. S7-13-00] | |||||||||
RIN 3235-AH91 |
|||||||||
Revision of the Commission's Auditor Independence Requirements |
|||||||||
Table 2 | |||||||||
Composition of Big 5 (Big 6/Big 8) U.S. Revenues by Service | |||||||||
Source: PAR, Annual Reports to SECPS, and SECPS Reports | |||||||||
Year |
A&A |
Tax |
MCS & Other | ||||||
Average |
Median |
Average |
Median |
Average |
Median | ||||
1981 |
NA |
NA |
NA |
NA |
15% |
13% | |||
1984 |
NA |
NA |
NA |
NA |
16% |
14% | |||
1986 |
NA |
NA |
NA |
NA |
18% |
18% | |||
1988 |
55% |
57% |
23% |
23% |
22% |
20% | |||
1993 |
46% |
51% |
23% |
22% |
30% |
27% | |||
1994 |
45% |
51% |
20% |
21% |
34% |
28% | |||
1995 |
40% |
43% |
20% |
20% |
40% |
35% | |||
1996 |
37% |
40% |
21% |
22% |
42% |
39% | |||
1997 |
34% |
36% |
21% |
21% |
45% |
42% | |||
1998 |
31% |
34% |
20% |
19% |
49% |
47% | |||
1999 |
31% |
33% |
19% |
18% |
50% |
49% | |||
NA indicates that item is not reported or not available |
|||||||||
Abbreviations of service lines: |
|||||||||
A&A - accounting and auditing |
|||||||||
MCS & Other - management consulting services and other non-audit, non-tax services | |||||||||
Information sources: |
|||||||||
PAR - Public Accounting Report, "Special Supplement: Annual Survey of National Accounting Firms - 2000, March 31, 2000. |
|||||||||
Annual Reports to SECPS - Annual reports filed with the AICPA Division for CPA Firms SECPS member public accounting firms |
|||||||||
SECPS Reports - Reports prepared by the AICPA Division for CPA Firms |
The Securities and Exchange Commission |
SEC Release 34-42994 | |||||||||
Proposed Rule: |
||||||||||
Revision of the Commission's Auditor Independence Requirements |
||||||||||
17 CFR Parts 210 and 240 |
||||||||||
[Release Nos. 33-7870; 34-42994; 35-27193; IC-24549; IA-1884; File No. S7-13-00] |
||||||||||
RIN 3235-AH91 |
||||||||||
Revision of the Commission's Auditor Independence Requirements |
||||||||||
Table 3 | ||||||||||
Range of MCS Fees to Audit Fees for SEC Audit Clients of Big 5 (Big 6/Big 8) Firms | ||||||||||
Source: Annual Reports to SECPS and SECPS Reports | ||||||||||
Year |
# clients |
0% |
1-25% |
26-50% |
51-100% |
> 100% |
>50% |
>25% | ||
1984 |
10,110 |
NA |
NA |
NA |
NA |
1.00% |
NA |
NA | ||
1986 |
11,439 |
NA |
NA |
1.90% |
1.20% |
1.20% |
2.50% |
4.40% | ||
1988 |
10,386 |
75.40% |
19.10% |
2.40% |
1.60% |
1.40% |
3.10% |
5.50% | ||
1989 |
11,164 |
77.30% |
17.00% |
2.50% |
1.80% |
1.50% |
3.20% |
5.70% | ||
1990 |
11,277 |
81.20% |
13.50% |
2.40% |
1.50% |
1.30% |
2.80% |
5.20% | ||
1991 |
11,520 |
83.40% |
12.50% |
1.90% |
1.40% |
0.80% |
2.20% |
4.10% | ||
1992 |
11,809 |
79.20% |
16.50% |
2.10% |
1.10% |
1.10% |
2.20% |
4.30% | ||
1993 |
12,362 |
83.80% |
11.50% |
2.20% |
1.30% |
1.20% |
2.50% |
4.70% | ||
1994 |
12,841 |
82.60% |
12.50% |
2.10% |
1.40% |
1.30% |
2.80% |
4.90% | ||
1995 |
12,793 |
81.80% |
13.40% |
2.30% |
1.20% |
1.20% |
2.40% |
4.70% | ||
1996 |
11,755 |
77.80% |
16.10% |
2.60% |
1.90% |
1.50% |
3.40% |
6.10% | ||
1997 |
11,846 |
78.10% |
14.80% |
2.90% |
2.10% |
2.10% |
4.20% |
7.10% | ||
1998 |
12,348 |
73.60% |
16.50% |
3.60% |
3.10% |
3.20% |
6.40% |
10.00% | ||
1999 |
12,769 |
74.30% |
14.30% |
3.70% |
3.00% |
4.60% |
7.60% |
11.30% | ||
NA indicates that item is not reported or not available |
||||||||||
Information sources: |
||||||||||
PAR - Public Accounting Report, "Special Supplement: Annual Survey of National Accounting Firms - 2000, March 31, 2000. |
||||||||||
Annual Reports to SECPS - Annual reports filed with the AICPA Division for CPA Firms SECPS member public accounting firms |
||||||||||
SECPS Reports - Reports prepared by the AICPA Division for CPA Firms |
The Securities and Exchange Commission |
SEC Release 34-42994 | |||||||
Proposed Rule: |
||||||||
Revision of the Commission's Auditor Independence Requirements |
||||||||
17 CFR Parts 210 and 240 |
||||||||
[Release Nos. 33-7870; 34-42994; 35-27193; IC-24549; IA-1884; File No. S7-13-00] | ||||||||
RIN 3235-AH91 |
||||||||
Revision of the Commission's Auditor Independence Requirements |
||||||||
Table 4 | ||||||||
MCS Activity for Public Accounting Firms Based on Number of SEC Audit Clients | ||||||||
For Most Recent Reporting Year | ||||||||
Source: SECPS Report | ||||||||
# clients |
# firms |
Average number of SEC clients |
Average MCS fees from SEC clients to total fees |
Average MCS fees from SEC clients to total MCS fees | ||||
> 1000 |
5 |
2554 |
10.00% |
22.80% | ||||
100 - 1000 |
3 |
314 |
1.00% |
3.60% | ||||
20 - 99 |
20 |
36 |
1.00% |
9.90% | ||||
19 - 3 |
258 |
6 |
0.90% |
7.40% | ||||
2 |
167 |
2 |
0.50% |
3.30% | ||||
1 |
351 |
1 |
0.40% |
5.00% | ||||
Information sources: |
||||||||
PAR - Public Accounting Report, "Special Supplement: Annual Survey of National Accounting Firms - 2000, March 31, 2000. |
||||||||
Annual Reports to SECPS - Annual reports filed with the AICPA Division for CPA Firms SECPS member public accounting firms |
||||||||
SECPS Reports - Reports prepared by the AICPA Division for CPA Firms |