North Carolina Association of Certified Public Accountants
Mr. Jonathan G. Katz,
U.S. Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC. 20549-0609
January 13, 2003
Re: File No. S7-49-02
Transmitted by email
Dear Secretary Katz:
The Board of Directors of the NC Association of Certified Public Accountants files the following in response to the recently published rules to implement the "Sarbanes-Oxley Act of 2002." The SEC proposal to strengthen the Commission's requirements regarding auditor independence contains numerous positive provisions. There are three areas, however, that create concern for all CPA firms, particularly small and medium sized practice units, if the rules are adopted unchanged.
- While we understand the need to promulgate rules that incorporate the prohibitions in Section 201 (a) of the Sarbanes-Oxley Act, we do not believe it is appropriate to intertwine the concept of independence therewith. In affect, the Commission is creating a piecemeal definition of independence with respect to a list of prohibited services. Such an approach is, in our view, unnecessary.
We suggest the Commission adopt the prohibited services clearly outlined without reference to the concept of independence.
- We are also concerned about the partner rotation rule. This rule, if implemented will injure many firms, whether they are serving SEC registrants or privately held clients. The smaller the CPA firm is, the greater the adverse impact will be. Due to the size of the firms serving some SEC registrants, the proposed partner rotation rule will prevent some firms from continuing to serve their client as their auditors all together. The Sarbanes-Oxley Act of 2002 did not intend this. Adoption of this rule will significantly reduce the number of CPA firms that could serve SEC registrants.
Forcing smaller CPA firms to resign from engagements due to their size and/or the number of audit partners is not in the best interests of the Commission nor its registrants. Sarbanes-Oxley significantly elevated the power and authority of the audit committee. Would it appropriate to permit audit committees to determine when a partner rotation issue must be considered rather than mandating a specific timetable? We encourage the Commission to reconsider its partner rotation rules.
- The mandatory cooling off period creates significant problems for CPA firms and the businesses they serve. Firms will potentially have difficulty in recruiting talent if its known that audit staff cannot accept an attractive position with a company being audited. This severely restrains the CPA firms, which cannot impose non-compete clauses on their staff in this area and must assign their best and brightest to the engagements.
The possibility exists for the company to discharge its auditor, solely because the company wants to hire a partner or staff member of the CPA firm. This is not the environment that was contemplated when Sarbanes-Oxley was being legislated. We urge the Commission to remove this rule and rethink the matter.
Thank you for the opportunity to comment. Please contact me at (704) 283-8189 or James T. Ahler, CAE, Executive Director of the NC Association of CPAs at (919) 469-1040, if you have questions.
Bucky Glover, CPA
North Carolina Association of CPAs