Inavisis International Inc./CSG
January 7, 2003
Jonathan G. Katz, Secretary
Re: File No. S7-49-02
Dear Secretary Katz:
The professional staff of Inavisis, Inc. and myself wishes to convey our views regarding the commission's rulemaking to implement Section 201(a) of the Sarbanes-Oxley Act of 2002. As you know this section precludes firms that are providing audit services from providing certain other defined services including appraisal and valuation services. Although firms providing audit services have traditionally provided many other services, including appraisal and valuation services, we believe that allowing this practice to continue; presents a clear conflict of interest, is not necessary for the corporation to obtain quality services, raises the potential for damage to the credibility of corporate management, erosion of confidence in the investment community and resulting damage to shareholders.
If the recent past has demonstrated anything, it is that the credibility of corporate management and reporting are of paramount importance in protecting shareholder value. Although firms providing audit services may argue hardship under such a rule, we feel that the benefits far outweigh any such hardship. It is simply not necessary for companies to accept the risk of the appearance of, and actual, conflicts of interest to obtain the services in question. In fact an argument can be made that publicly held companies will receive even higher quality services if companies providing audit services are clearly banned from providing the services specified in Sections 201(a) of the Sarbanes-Oxley Act of 2002. Only a clear ban would be entirely consistent with express provisions, and the implicit intent of that law.
Many firms exist which specialize in all types of financial and managerial consultation services, which are specified in Sections 201(a). These firms have developed a great deal of specialized expertise, and only they are in a position to provide that expertise without any conflict of interest. These firms are free to practice within their special area of expertise, independent of the need to impartially evaluate the financial reports of their client. In fact, such firms working in concert with the client's auditor form a team that brings fairness, balance, and peer review to the entire process. As the agency itself has pointed out in its discussion of the proposed rule, "...the quality of the audit may be improved where specialists are utilized in such situations."
In the case of our own firm, I can honestly state that my staff and I have as much or more expertise in the valuation of Intellectual Property and intangible assets as anyone. More importantly we are in a unique position to provide that expertise without any conflicts of interest. I believe that you will find that there are many more highly qualified firms that also meet that description, not only on our area of expertise, but in all the areas covered by Section 201(a).
Allowing any exceptions to specifically prohibited services-under any circumstances-would only invite some firms to construct circumstances, or develop interpretations of the rules, to "justify" their expansion of services to their audit clients. Just as the appearance of impropriety may constitute a breach of professional ethics, potential gray areas here too must be clearly resolved under the proposed rules. For this reason, we support rules precluding auditors from providing the services defined under Section 201(a) to their active audit clients, even if the results of those services are not reasonably likely to be subject to audit procedures. To allow otherwise would not eliminate the fundamental conflict of interest that was the underlying intent of the Sarbanes-Oxley Act.
The past three years have clearly demonstrated a public crisis of confidence in the capital markets. The major purpose of the Sarbanes-Oxley Act was to restore that confidence. Promulgation of rules that clearly implement the prohibitions set forth in Section 201(a) will do much to accomplish that goal.