From: MACPA [MACPA@macpa.org]
Sent: Monday, January 13, 2003 2:53 PM
To: 'rule-comments@sec.gov'
Subject: File No. S7-49-02

January 13, 2003

Jonathan G. Katz, Secretary
U.S. Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC, 20549-0609

Submitted electronically to: rule-comments@sec.gov 

Subject: File No. S7-49-02 

Response to SEC rule release #33-8154

The Maryland Association of Certified Public Accountants (MACPA) represents
nearly 10,000 CPAs licensed in the state of Maryland. MACPA acknowledges the
need for improvements in financial reporting and emphasizes the urgency of
restoring public confidence in CPAs, the audit process and financial
markets. To this end, MACPA formed a task force that developed
recommendations for much-needed reforms designed to help restore public
confidence in the CPA profession and the markets, preserve the vitality of
the CPA profession in Maryland, and strengthen the Maryland economy. This
task force was made up of CPAs who are public company CFOs, small business
owners, attorneys, investors and business leaders, as well as CPAs in public
practice and a representative of the Maryland Chamber of Commerce. MACPA has
also conducted an intensive outreach to our CPA members, including chapter
meetings, town hall meetings and personal visits to CPA firms. Our goal has
been to advise our members of the issues affecting the profession and to
reaffirm the CPA core values of integrity and objectivity. 

MACPA supports in principle a majority of the provisions in the
Sarbanes-Oxley Act of 2002 for SEC companies and their auditors, as being
necessary for financial reform and in the best interest of the public. These
include creation of an independent Public Accountability & Oversight Board;
strengthening of corporate governance and responsibility; and provisions to
clarify the auditor's role. 

In Section I of Proposed Rule 33-8154, Background and Introduction, there is
discussion of the approach to the rules that we would like to comment on.
Rather than define conduct that impairs independence and draft provisions
based on whether an accountant is "independent" in the conduct of the audit,
MACPA requests that the SEC take the other approach you are considering.
That is, change the format from rules defining actions that impair the
auditor's independence to rules prohibiting specific services. That approach
is consistent with the approach Congress took in the Sarbanes-Oxley Act. 

By establishing professional standards of independence, the SEC may affect
small non-SEC companies. Although we recognize the concern that Congress
expressed regarding the independence of auditors of SEC companies, we do
believe that Congress may have been attempting to avoid impacting the audits
of non-SEC companies. The Sarbanes-Oxley Act was designed strictly to
address issues related to publicly-traded entities and their auditors. The
prohibition of services applies only to those entities.  

Due to the involvement of Congress, many regulators, including state
legislators and boards of accountancy are looking to the proposed rules to
determine actions they should take. The concern is those regulators will
adopt the strict definitions of independence spelled out in the SEC proposed
rules. 

If those concepts of independence were adopted by regulators other than the
SEC, it would prohibit services that are vital to small, privately-held
entities. Those entities are structured very differently from SEC companies
and have very different needs.  

In addition, the definition of independence applies to other financial
statement services provided by CPAs for non-SEC companies, including the
review and compilation services. CPAs are required by professional standards
to issue either a review or compilation report on any non-audited financial
statement prepared for clients. The proposed definition of independence
would prohibit CPAs from being able to provide those services. 

While we agree in theory with the basic principles of independence, we do
not agree that some of the services prohibited in the proposed rules would
necessarily violate those principles of independence. Moreover, we believe
that the individual circumstances determine whether or not the principles of
independence have been violated. 

Having said that, we recognize the need to restrict services provided by
auditors of SEC companies due to the perception of the investing public. We
request the SEC recognize the differences in publicly-traded entities and
avoid the impact on non-SEC companies. 

We suggest the SEC focus on the unique requirements of publicly-traded
entities and the reasons the services of their auditors should be
restricted. This is one way to ensure that privately-held companies will not
be adversely affected. 

The independence rules recently adopted by the SEC provide sufficient
framework to insure the independence; therefore, there need not be any
further discussion of principles of independence in these proposed rules.
The current changes should focus on prohibited services only. 

We appreciate the opportunity to provide comments.  Thank you for
considering our views. If you have any questions, you may contact Tom Hood,
Executive Director of MACPA, at 410-296-6250.

Sincerely yours,
Graylin E. Smith, CPA
President
Maryland Association of Certified Public Accountants