Subject: File No. S7-16-98 Date: 8/20/98 8:35 PM COMMENTS RE SEC'S PROPOSED AMENDMENT RE DISCIPLINARY RULES: I am in support of the Commission's view, as reflected in its proposed amendment, that disciplinary action under Rule 102(e) is warranted against an accountant who commits an intentional or knowing violation of applicable professional standards. I would also agree that a reckless violation - properly understood as reflecting a conscious and deliberate disregard of applicable professional standards - should be subject to sanction. Knowing or reckless conduct may give rise to an inference of a threat to the commission's processes ( and thus the financial reporting system), thereby justifying the imposition of sanctions. I disagree, however, with certain other aspects of the proposed amendment. I do not believe that a single act of simple negligence - which the proposed amendment may well be interpreted to encompass - should ever constitute "improper professional conduct" for purposes of Rule 102(e). The federal securities laws neither expressly nor implicitly authorize the Commission to sanction professionals for negligent conduct. Rather, responsibility for the disicipline of accountants rests primarily with state boards of accountancy and professional organizations. Introduction of a simple negligence standard in Rule 102(e) proceedings, therefore,would constitute an illegitimate expansion of the Commission's regulatory oversight powers. In addition, the investing public benefits from accountants who feel free to exercise their best independent judgement. The SEC's proposed rule gives the SEC license to, with the benefit of hindsight, disagree with any one of the myriad of judgements accountants make in the preparation of financial statements and in the course of an audit, and thereby subject them to sanction based solely on that disagreement. Such an environment obviously restricts accountants in the free exercise of their judgement to the detriment of our financial reporting system. Sanctioning accountants for single acts of simple negligence is inconsistent with the purposes of Rule 102(e). The Commission promulgated the rule to protect the integrity of its processes, not to add an additional weapon to its enforcement arsenal. The proposed rule does not directly further the SEC's purpose of ensuring accurate and complete disclosure insofar as the proposed rule would only require the presence of a "substantial risk" that a document might be materially misstated. The proposed rule thus adopts a standard that could result in an enforcement proceeding against the professional even where no misstatement has occurred. The SEC's proposal, which the SEC states applies only to accountants unjustifiably singles out the accounting profession for a more stringent standard of care than other professionals who practice before the Commission. The SEC would be able to utilize a rule which has a threshold for imposing discipline much lower than the requirement imposed by Congress for officers and directors who violate the securities laws. The incongruity of a disciplinary regime that would subject auditors to discipline under a far broader standard than management which has primary responsibility for financial reporting is manifest. For the above reasons, I believe that a Rule 102(e) negligence standard with respect to accountants contravenes public policy, treats accountants in a discriminatory manner, and would actually diminish the vital role of accountants as guardians of the financial reporting system. I would support the adoption by the Commission of the AICPA'a rule making petition and sanction of accountants only in the event of a knowing or conscious and deliberate violation of applicable professional standards or a pattern of misconduct that can be shown to create the required risk to the Commission's processes or the financial reporting system. Very truly yours, Barry F. Holes CPA, Principal Hill, Barth & King, Inc. CPA's 3777 Tamiami Trail North #200 Naples, Fl 34119