Prudential PLC

Jonathan G Katz
US Securities and Exchange Commission
450 5th Street NW
Washington DC 20549-0609

Reference file no: S7-49-02

13 January 2003

Dear Mr Katz

I refer to your proposals for the strengthening of the auditor independence rules that were published for comment on 2nd December 2002. I recognise the importance of ensuring that users of audited financial statements are confident in the independence of the audit of those statements. This is an important part of ensuring investor confidence is maintained and enhanced. However, as both a registrant and an investor we are concerned that the proposed new rules on the rotation of auditor partners may act against the interests of investors by lowering audit quality in the pursuit of independence, while increasing audit cost at the same time.

The partner rotation rules as legislated in the Sarbanes Oxley Act required that the lead engagement partner and concurring review partner be replaced on the engagement every five years. This rule seems to be an appropriate strengthening of the requirements for rotation, although going further than current practice in many jurisdictions.

The Commission's proposed ruling significantly extends the number of partners subject to rotation by requiring all partners with a continuing role in the audit, including specialist partners and partners responsible for significant subsidiaries, to so rotate.

We are concerned that the effect of the Commission's proposals will potentially lead to a decrease in the quality of audit work given the reduced familiarity of the engagement team as a whole with an audit client's affairs whilst adding significantly to the cost of auditing financial statements, given the significant increase in the number of partners rotating off the engagement over time.

Maximising audit quality requires a trade-off between on one hand an appropriate understanding by members of the engagement team of the client's business, its accounting and internal control processes and its financial reporting, and on the other hand the independence of the engagement team. Complex and diversified international groups will easily have many partners in their audit teams who would be subject to the proposed rotation requirement. The balance of risk and reward between the probability of all these partners colluding in inappropriate behaviour and the inevitable decrease in the quality of audits resulting from the massive partner rotation which would result from the Commission's proposals seems to us to be inappropriate. As a major investing institution we believe the actual quality of the audit is more important than the increased perception of independence which the proposals are designed to achieve. We also believe it is important to allow partners to spend an appropriate period of time becoming familiar with the client's business in an operating unit before moving onto the role of lead engagement partner.

I would therefore ask you to reconsider whether it is necessary to implement partner rotation proposals that go beyond those legislated for by the Sarbanes Oxley Act.

Yours sincerely

Philip Broadley
Group Finance Director