Office of the Chief Accountant:
Regarding Auditor Independence
Letter to Arthur Andersen & Co., 1990
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C 20549
June 20, 1990
Mr. Robert Mednick |
Arthur Andersen & Co.
69 W. Washington Street
Chicago, Illinois 60602
Dear Mr. Mednick:
The staff has reviewed the April 18, 1990 submission by Mr. Harvey Pitt, on behalf of Arthur Andersen & Co., titled "Business Relationships Between Andersen Consulting and Audit Clients of Arthur Andersen & Co."
Based upon the facts presented in that submission, but without necessarily
agreeing with Mr. Pitt's legal and factual analysis, and upon various oral
representations made by representatives of Arthur Andersen (AA) and Andersen
Consulting (AC) as noted below, the Office of the Chief Accountant (OCA) will
not object to AA's conclusion that a business relationship between AC and an
audit client of AA that is structured as described in the submission may be
considered an indirect business relationship between AA and the audit client for
purposes of applying the Commission's independence requirements. In that case,
AA's independence with respect to that client would not be considered by the
staff to be impaired, solely as the result of such a business relationship that
is not material to AA, AC, or the audit client. In this connection, the staff
especially notes representations that: Arthur Andersen & Co., for a valid
business purpose, has undergone a substantive restructuring, effective September
1989; AC is an Illinois partnership separate from AA with its own partners,
management, employees, leases, business, substantive capitalization, and
substantive separate client base; AA and AC will establish separate corporate
images, through advertising and the differing nature of the services offered by
each; neither AA nor AC will exercise significant influence over the others
operating, financial, or accounting policies; and the economic impact of any
particular business relationship between AC and an audit client of AA would be
clearly de minimis to AA. AA and AC also have represented that AC will comply
with the Commission's other independence requirements.
Because OCA's position is based upon the representations made to the staff, it should be noted that any different facts or conditions might require a different conclusion. In taking this position, the staff emphasizes the importance of a careful and cautious analysis of materiality considerations to AA, AC, and the audit client, including consideration of both the qualitative and quantitative aspects of materiality.
OCA's position is based upon the Commission's current independence
interpretations. As you know, the staff is in the process of reviewing those
interpretations. This study may include a general review of the effects of
firms' structures on the classification of direct versus indirect business
relationships, and on other relationships with audit clients.
Harvey L. Pitt, Esq.
Fried, Frank, Harris,
Shriver & Jacobson
1001 Pennsylvania Ave., N.W.
Washington, D.C. 20004-2505