July 20, 1998
Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 5th Street N. W.
Washington D. C.
Re: Reference File No. 57-16-98, Response to request for comment, proposed amendment to Rule 102(e)
Dear Mr. Katz:
Thank you for the opportunity to respond to the invitation to comment on the proposed amendments to Rule 102(e). The following represent my comments on the proposed amendments.
1. Does the proposed amendment clarify the definition of "improper professional conduct?"
Yes. The two identified criteria:
A) intentional or knowing, and reckless violation of applicable professional standardsare clear, understandable definitions of improper professional conduct.
B) negligent conduct to the extent it was:a) an unreasonable violation of applicable professional standards which presents a substantial risk (either known or should have been known) or,
b) a repeated, unreasonable violation of applicable professional standards that demonstrates the accountant lacks competence,
Similar provisions appear in the AICPA Code of Professional Conduct, under Acts Discreditable, Rule 501, paragraph 501.5, Failure to follow requirements of governmental bodies, commissions, or other regulatory agencies in performing attest or similar services.
Most states have incorporated the AICPA Code of Professional Conduct by reference or have enacted similar rules within their accountants licensing acts. I do not believe the above definition would be found in conflict with most states laws and rules.
2. Would another definition of "improper professional conduct be better suited for achieving the Commissions goal of protecting the integrity of its processes?
No. I agree the definition of "improper professional conduct" may correctly be broken down into two components, A) intentional or knowing, and reckless conduct; and B) conduct posing a substantial risk wether known or should have been known, and repeated unreasonable violations where the accountant demonstrates a lack of competence.
3. Does the proposed amendment include conduct that should not be considered "improper professional conduct?"
No. The explanation on page ten of the conditions of negligence which would come under Rule 102(e) are reasonable and, I believe actionable. I believe virtually all state boards would be drawn to conclude disciplinary actions would be warranted under these definitions.
I agree with the concerns raised by Commissioner Johnson, that the authority of the Commission to impose sanctions should be done so with prudent restraint commensurate with the merits of the case. I believe however, the conditions of negligence defined in the proposed amendment should merit remedial sanctions.
4. Does the proposed amendment cover all of the conduct that should be considered "improper professional conduct" under Rule 102(e)(1)(ii)?
Yes, I believe the definition is sufficiently broad.
5. If not, what else should be considered?
Nothing else needs to be considered.
6. Would a less rigorous standard of "recklessness" be more appropriate in the context of a disciplinary rule such as Rule 102(e)(1)(ii) where the purpose of the rule is to protect the integrity of the Commissions processes?
7. Should circumstances other than the two defined circumstances of negligent conduct be included in the proposed definition of "improper professional conduct?"
8. Does the term "applicable professional standards" provide adequate guidance to the accounting profession?"
9. What weight should be given to the good faith of an accountant at the sanctioning stage of the Rule 102(e)(1)(ii)?"
A demonstration of sincere good faith warrants consideration at the sanctioning stage. However, sanctions must be applied consistently to be fair and, must include adequate consideration of the potential risks and severity of harm which may have been caused by the accountant. Expressions of good faith by the accountant should also be accompanied by demonstrable actions before reductions to the prescribed sanctions are considered.
For instance, a barring from practice before the SEC for a specified period of time might be reduced if a certain amount of continuing professional education were completed in designated areas of study and a peer review of the practice could evidence the correction of certain inadequate practices.
I hope you find these observations helpful. Please feel free to call me should you want to discuss any of them.
Dennis Paul Spackman, CPA