January 13, 2003
Mr. Jonathan G. Katz, Secretary
Re: Strengthening the Commission's Requirements
Dear Mr. Katz:
We each serve as chairman of many of the audit committees for the registered investment companies ("Alliance Funds") managed by Alliance Capital Management L.P. ("Alliance"). In that capacity, we are writing to urge the Commission not to adopt the proposed rule requiring pre-approval by an investment company's audit committee of non-audit services provided by the investment company's auditors to its investment adviser and the adviser's affiliates that provide services to the investment company ("the "Pre-approval Requirement").
We believe that the Pre-approval Requirement will impose an unnecessary burden on investment companies' audit committees and attendant costs to the investment companies and their shareholders, and could require replacement of an investment company's auditors under circumstances that do not warrant such a drastic result.
Our audit committees understand that under current independence standards independent auditors of investment companies must also be independent of their investment advisers. As required by our charters, the audit committees require on-going disclosure of all non-audit services provided by the auditors of the Alliance Funds to Alliance and its affiliates that provide services to the Funds. The audit committees are able at our regularly scheduled meetings to receive this disclosure and evaluate whether these services or attendant fees impair the actual independence of our auditors.
We do not understand why this current best practice does not continue to be both appropriate and sufficient. The restrictions on non-audit services that may be provided by independent auditors pursuant to the Sarbanes-Oxley Act and proposed Commission regulations will permit independent auditors to provide only those non-audit services that are deemed not to affect their independence. Periodic disclosure and evaluation of these services by the audit committees at regular meetings seems a perfectly rational and appropriately time and cost efficient process to assess the effect of these limited permitted services on actual independence of the auditors. We have been advised that the Pre-approval Requirement is not mandated by the Sarbanes-Oxley Act and that the Commission has not suggested any practices or problems that mandate the Pre-approval Requirement for reasons of public policy.
Adoption of the Pre-approval Requirement could also have the anomalous and unfortunate consequence of impairing an auditor's independence in respect of an investment company but not its investment adviser, if the auditor has obtained pre-approval from the adviser's audit committee of perfectly legitimate non-audit services to the adviser but has failed to obtain pre-approval by the investment company's audit committee. The resulting loss by the investment company of its independent auditors (absent the availability of a de minimis exception or regulatory relief) would be a harsh consequence visited on the wrong party for a compliance failure over which it had no control.
We believe that adoption of the Pre-approval Requirement would be an unfortunate policy decision and urge the Commission instead to require timely disclosure to audit committees of registered investment companies of all non-audit services provided by their auditors to their investment advisers and the advisers' affiliates that provide services to the investment companies.
Please feel free to contact Mr. Foulk, (tel. 203-661-3328; e-mail: firstname.lastname@example.org) if you would like to discuss our views further.
cc: Paul F. Roye, Esq.