Dear Mr. Katz
The document entitled "Strengthening the Commission's Requirements Regarding Auditor Independence" needs a companion document, if you will, an "Environmental Impact Statement." Such a statement would define which accounting firms and entities the proposed changes do not apply to.
One can assume that the proposed changes related to publicly traded corporations will apply to six accounting firms and on rare occasions to as many as ten or twelve others. One can also assume that the proposed changes will have an impact on the few thousand public corporations. These are, of course, the primary interest of the SEC. But these represent only a small fraction of the work of the accounting community and only a small percent of the business and not for profit entities that require audits, reviews, compilations and attest documents.
For example, there is no mention of the governmental "Yellow Book" audits. While it is easy to see that the audit of, say, the City of Chicago may have a great deal in common with large public companies. How about the audit of the 800 square foot public library in East Troy?
For example, there is no mention of employee benefit plan audits for smaller closely-held companies. Do these require five year partner rotation for accounting firms that may have only one partner with such expertise?
For example, it is one thing to prohibit investment advisory services (or tax services) related to the cash and profits of a publicly traded corporation. But what about providing such services to employees of the corporation? What about investment advisory services for the sole proprietor of a small business that only needs an audit to support a bank loan.
A recent study of the 400 largest accounting firms in the US shows that 62% of them provide investment advisory services. The listing of some of the other services offered by accounting firms may be of interest - http://www.accountingmarketing.org/surveys/Survey.pdf. Such a listing may serve as a useful quantitative benchmark in the analysis of the impact of these proposed rules on the rest of the profession.
Already we are seeing a huge impact on the 700,000 (c)(3)s and other not for profit entities. Their boards often include one or more corporate CFOs who caution against the use of the accountant for suggestions on software selection, showing the secretary how to make entries in the bookkeeping system, annual filing requirements, recommendations on payroll or even advice on unrelated business activity. That despite the fact that a quarter of them have annual revenues of less than a million dollars.
Already we are seeing state legislatures and their licensing boards abandoning the principles of the Uniform Accountancy Act and rush to embrace bits and pieces of these proposed changes. Whether or not the benefits warrant the costs of disparate state standards and the inflexibility of decreasing licensing reciprocity remains to be seen.
None of these comments should be construed as blind opposition, rather they begin to point out the impact on the other side of the profession - small practitioners and small business. An impact statement on the environment in which each works, needs to be considered.
Please note: I am a member of the Association for Accounting Marketing and an employee of the Illinois CPA Society. The views above have no relationship to, nor have they been reviewed or endorsed by, either organization. I have worked in accounting firms and with their small business clients for nearly 20 years.