August 20, 1998


Jonathan G. Katz
Secretary
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549-6009


RE: File No. S7-16-98

Dear Mr. Katz:

This comment letter is in response to the proposed amendment by the SEC to Rule 102(e) of 
its Rules of Practice. We have read the discussion of the proposed amendments by the SEC to 
this rule which governs the conduct of accountants and other professionals who perform 
audits for public companies and/or otherwise practice before the Commission. We realize that 
this rule authorizes the Commission to censure, suspend, or bar from practice before the 
Commission, any person who engages in “improper professional contact”. The purpose for the 
proposed amendment is in response to a recent March 1998 decision by the United States 
Court of Appeals. As we understand, this court case criticized the SEC for its inability to 
justify sanctions on accountants for improper professional conduct under Rule 102(e). Thus 
resulting in the need for the SEC to propose amendment to this particular rule. However, as 
we understand the SEC’s current proposed amendment language, the new rule could extend to  
accountants who make mere errors in judgment or good faith differences of opinions about 
professional standards and could use this ordinary negligence standard to bar or otherwise 
discipline accountants, whether in industry or public practice, from being associated with 
documents filed with the Commission. We are taking this opportunity as invited to make 
public comment on the proposed rule amendment. 

We agree that the Commission should protect the integrity of its processes and thus the 
financial reporting system for the benefit of the public and its investors. We also agree that 
accounting professionals must be available to exercise their freedom of professional 
judgment. However, we do not feel that the rule, as it currently reads in the proposed amended 
form and definition of improper professional conduct, should be use by the Commission in the 
engagement of substantive regulation of the accounting industry and its professionals. The 
term “improper professional conduct” under a recent AICPA proposed definition deals with 
professionals who are substantially unfit to practice before the Commission and which would 
be established by a demonstration that the accounting professional (i) normally violated 
applicable professional standards, (ii) consciously and deliberately disregarded applicable 
professional standards, or (iii) engaged in a course or pattern of conduct showing repeated 
failure to conform to applicable professional standards, but only where it established that such 
conduct posed a threat to the integrity of the Commission’s processes. Under this definition of 
“improper professional conduct” a single act of mere negligence, which may be caused by an 
isolated error or mistake of judgment, should not meet the Commission proposed language for 
the definition of “improper professional conduct”. As a practicing professional firm with SEC 
clients, we are committed to protecting the investing public from untrustworthy or grossly 
incompetent practitioners in our profession. We realize that this is necessary to ensure the 
integrity of the Commission’s processes. However, the ability to sanction accountants and 
other professionals in the industry for good-faith differences of opinion or isolated instances 
in the application of professional standards, in our opinion, would place constraints on the 
accountant’s ability to exercise independent judgment without the fear of that judgment could 
be sanctioned under this proposed amendment language to the definition under Rule 102(e).

We appreciate the opportunity to present our public input to the Commission during this 
decision making process. We agree that the Commission needs to further clarify with greater 
certainty and consistency the application of the rule in question. However, we do take 
exception with the unclear nature of the amendment which suggests that under certain aspects 
the Commission may take disciplinary action for circumstances which we in the profession 
see as isolated instances of violation of applicable professional standard or differences in 
professional judgment. A single act of simple negligence should not constitute “improper 
professional conduct” in our opinion. Per our understanding of the Federal Securities Law, it 
doesn’t appear to either expressly or implicitly authorize the Commission to sanction 
accounting professionals for negligent conduct. That sanctioning function should remain with 
our Professional Standards Setting Boards and related State Boards of Accountancy. 

Further comments of concern with the proposed amendment deal with the process of focusing 
primarily on accountants only with regard to the modifications to the Rules of Practice. Other 
professionals within the public, such as attorneys, underwriters, and related professionals, also 
are an important part of filings covered under the control of the Commission. Furthermore, 
directors and officers of the related public companies do not appear to be subject to as 
stringent an interpretation under this rule as accounting professionals, when, in fact, the 
directors and officers are the primary group of individuals responsible for the financial 
reporting for the related entity. This discrepancy does not seem appropriate under the 
proposed amendment.

Conclusion

Based on the reasons outlined above, which is our form of public comment with regard to the 
proposed Amendment to Rule 102(e), it is our opinion that the investing public and the 
accounting profession alike would be better served if the Commission’s proposed amendment 
followed more closely a previous definition supplied by our professional association, the 
AICPA. We agree that accounting professionals who knowingly or consciously and 
deliberately violate applicable professional standards should hold themselves accountable for 
a pattern of misconduct that could be shown to create substantial risk for the Commission’s 
processes or financial reporting systems. Those professional should be held accountable and 
subject to the sanctioning process.

We appreciate the Commission’s offer to allow us to comment on this matter. We feel it very 
important since we do practice currently before the SEC with our clients who are public 
companies and wish to continue a standard of performance in our profession.



Very truly yours,

s\Timothy A. Kelley

Timothy A. Kelley, Audit Partner
Crisp Hughes Evans, LLP
Asheville, North Carolina