Comments on Proposed Rule:
Revision of the Commission's Auditor
Independence Requirements
[Release Nos. 33-7870; 34-42994; 35-27193; IC-24549; IA-1884; File No. S7-13-00]
Author: "Sherry Barth" at Internet
Date: 09/22/2000 12:44 PM
Normal
TO: RULE-COMMENTS at 03SEC
Subject: File No. S7-13-00
------------------------------- Message Contents
The proposal, if approved, would prohibit the CPA firms that perform the
financial statements from providing internal audit services to that firm. I
feel this is a good first step toward restoring public confidence in
external auditors and their independence.
Sherry G. Barth
Director of Internal Audit
Connecticut State University System
39 Woodland Street
Hartford, CT 06105
barths@sysoff.ctstateu.edu
Phone: (860) 493-0173
Fax: (860) 493-0006
Author: "Rick Betts" at Internet
Date: 09/22/2000 7:37 AM
Normal
TO: RULE-COMMENTS at 03SEC
Subject: Reference file No.: S7-13-00
------------------------------- Message Contents
Comments on proposed SEC rule prohibiting non-audit services to CPA firms'
attest clients
I'm writing to protest the proposed SEC rule prohibiting non-audit services to
CPA firms' attest clients. Our firm serves regulated utility companies that
require considerable regulatory, consulting, and compliance work above and
beyond the audit function. The rule proposed by the SEC will effectively
eliminate our ability to provide these services to our clients.
I agree CPA's would be more independent if the proposed SEC rule is enacted, but
not by much. Please consider:
· The attest fees will still be significant to CPA's and that is the fatal
threat to independence. This proposed rule will reduce fees earned from attest
clients, but the fee issue will still be the fundamental tension that causes CPA
firm's to compromise their integrity because of a financial tie to a client.
· Other existing rules prohibit involvement with client transactions.
These rules are sufficient enough to do the job in the vast majority of
situations. CPA's do a good job of drawing the line between consulting and
attest engagements. Although the situation is not perfect, CPA's armed with
ethics training and existing rules are able to do both.
The quality of services aimed at helping businesses to be more financially
successful will be dramatically reduced. This negative by product of the SEC
proposed rule greatly outweighs any benefit from improved independence. Please
consider.
· This rule affects the entire accounting profession. In effect it
prevents auditors from doing anything else. It is completely impractical to
believe that auditors will audit one set of clients and provide consulting to a
different set of clients. It will result in a CPA being 100% either an auditor
or a consultant. The inability of auditors to provide even casual consulting
will result in a serious loss of job satisfaction that will drive CPA's
(especially the good ones) out of auditing and ultimately away from the CPA
credential. The costs of audits will increase and the skills of auditor CPA's
will decline resulting in poorer quality audits.
o The practical result of this rule will be to take away much of the
activity that auditors enjoy. The result will be a diversion of talent away
from auditing to other fields of accounting or other professions.
· Another rule by Congress caused the vast majority of American businesses
to adopt a December 31st as their fiscal year end. Therefore, most audit work
is performed in the January through March timeframe (in my case 100% of my audit
work is during those months). This rule has made it difficult for auditors to
stay productive the other 9 months of the year. Preventing those auditors from
doing other work for their clients makes an already bad situation a full-blown
disaster. Does the SEC really think that these auditors will simply find other
non-attest clients to perform consulting work? Obviously it will be difficult
to find these clients and even when opportunities arise how skilled will the
auditors be with this barrier to developing consulting expertise?
· A great amount of consulting work prohibited by the proposed rule is an
attempt by the CPA's to solve problems and seize opportunities that come to
light during the audit. How strong is the incentive for auditors to help their
clients in these areas if the benefit goes to another firm and if that other
firm is a competitor? Answer - not much incentive. What are the larger
implications if auditors don't use their business knowledge to consult with
their clients? Answer - businesses will suffer.
· How does the SEC really intend to define the prohibited services? This
distinction will be very difficult to make which will undermine the workability
of the rule. For example, when is bookkeeping a part of the audit and when is
it a consulting engagement? Is it prohibited bookkeeping if:
o An auditor prepares workpapers that reconciles an account
o The same workpaper is prepared to help the client prepare for the audit
o The same workpaper is prepared during interim procedures and the client
makes a journal entry to correct an item
Our clients, their bankers and owners don't care about drawing a line between
attest, tax, and consulting services. They just want accurate financial records
and help with their financial systems by the professionals that understand them
the best. CPA's do this, our clients appreciate it and we don't need a rule to
regulate a problem that is a rarity. We charge for these services, so we have
to walk a difficult line with independence. A rule isn't going to take that
inherent issue away. This rule will greatly damage the CPA business model and
will be viewed by the business community as a horrendous error.
Don't pass a this new rule; just spend more effort on enforcing the existing
rules.
Rick Betts
Moss Adams - Spokane
rickb@mossadams.com
Direct line: (509) 777-0187
Fax: (509) 624-5129
Cell phone: (509) 994-8386
Email to pager (limit 150 characters):
5099948386@mobile.att.net
Author: Amy Bokenkamp at Internet
Date: 09/22/2000 1:33 PM
Normal
TO: RULE-COMMENTS at 03SEC
Subject: File No. S7-13-00, Testimony
------------------------------- Message Contents
This proposed rule regarding CPA independence, which would prohibit CPA
firms from providing non-audit services to their audit clients, should
be implemented.
I strongly believe that it would be difficult, if not impossible, for an
accountant to maintain independence and objectivity when providing both
management advisory services and auditing services to his or her audit
clients.
I applaud the SEC for taking these steps to protect investors.
_________________________________
Amy Bokenkamp, CIA
Internal Auditor
UAB Health System Internal Audit
Phone: (205) 934-4101
Fax: (205) 975-7019
E-Mail: bokenkam@uab.edu
Mailing address:
MT 647
1530 3RD AVE S
BIRMIAuthor: "Alfred S. Chavez" at Internet
Date: 09/22/2000 1:11 PM
Normal
TO: RULE-COMMENTS at 03SEC
Subject: In support of Independence changes
------------------------------- Message Contents
This is to write in support of the SEC rules changes that would prohibit CPA
firms from providing outsourced internal audit services (an oxymoron if
there ever was one) to institutions for whom they are simultaneously the
independent auditors.
Thank you.
Alfred S. Chavez Jr. CPA
Director of Internal Audit
University System of Maryland
3300 Metzerott Road
Adelphi, MD. 20783
achavez@usmd.edu
NGHAM AL 35294-4410
Author: "Daniel F. Clifford" at Internet
Date: 09/22/2000 2:09 PM
Normal
TO: RULE-COMMENTS at 03SEC
Subject: Proposed audit rules
------------------------------- Message Contents
Please see attached letter
<>
In case you can't open word file letter is reproduced below
September 22, 2000
Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549-0609
Dear Mr. Katz,
On behalf of our firm, our community bank clients, and
community banks everywhere I am writing to voice objection to the
proposed SEC rule that will put severe constraints on the ability of
banks to use their independent auditors for internal audits and other
services. Once again, it appears CPA's everywhere must suffer due to
the fast and loose operations of our brethren (at least as such term
relates professionally) in the largest public accounting firms. Instead
of dealing swiftly and justly with those firms who do not abide by
existing independence standards, the SEC appears willing to simply
impose unfair and constraining new rules on the profession.
Typically, I could care less what ridiculous layers of
regulation the SEC requires since our firm does not audit any
registrants. However, we do have small community bank clients who will
be affected by your decisions to the extent that their principal
regulators, be they the Office of the Comptroller of the Currency, the
Federal Reserve, or the State of Ohio, adopt the same standards.
Presently we provide both internal and external audit services
to small banks that have no internal auditor on staff. The internal
audit outsourcing is performed in accordance with the FFIEC interagency
policy statement requirements. The external exam is done in accordance
with generally accepted auditing standards.
Our clients are not required to have external opinion audits and
will simply stop having performed rather than shift to a much more costly
additional auditing firm. I simply can't believe the SEC naively
believes the application of the proposed independence rules will
strengthen audit standards for community banks. In testimony before the
SEC in July, Comptroller of the Currency Jerry Hawke said, " I would be
concerned if a rigid application of a rule against outsourcing internal
audit caused some smaller institutions to elect to forgo such audits, in
order to be able to continue outsourcing internal audit functions to the
same firm they had been using for external opinion audits."
In conclusion, please add my name, and our Firm's, to what I
hope is a long list of opponents to your proposed changes.
Sincerely,
Dan F. Clifford
E. S. Evans and Company
Author: Walter Conway at Internet
Date: 09/22/2000 1:21 PM
Normal
TO: RULE-COMMENTS at 03SEC
Subject: File No. S7-13-00
------------------------------- Message Contents
SEC,
I am writing to express my full support of the proposal by SEC (File No.
S7-13-00). It is time to instill true independence and objectivity in
the auditing function and provide true assurance to investors. The
"fox" should not be watching the "hen house" as these outsourcing
arrangements allow. I hope to see this proposal accepted quickly and
unanimously by the SEC.
Respectfully,
Walter Conway, CISA
Author: "Tammy Erickson" at Internet
Date: 09/22/2000 11:03 AM
Normal
TO: RULE-COMMENTS at 03SEC
Subject: Reference file No.: S7-13-00
------------------------------- Message Contents
September 22, 2000
Reference file No.: S7-13-00
To Whom It May Concern:
I'm writing to protest the proposed SEC rule prohibiting non-audit services to
CPA firm's attest clients. My firm serves smaller SEC registrants that require
considerable hand holding to comply with SEC reporting rules. The draconian
rule proposed by the SEC will effectively eliminate our ability to provide this
service, which benefits the SEC, the client and the investing public.
Small registrants cannot afford to hire the expertise necessary to comply with
the many regulations promulgated by the SEC and other regulators. They rely on
their CPA firms to perform not only the audit function but also advise them on
the many systems, controls and policies they must follow in order to be
successful in business and comply with the regulations.
It will be next to impossible for these enterprises to segregate their single
CPA firm relationship into multiple relationships in order to comply with the
new independence rules. CPA's will refuse to provide audit services or require
excessive fee increases due to the inefficiencies imposed by these regulations.
Most CPA firms below the Big Five in sizes will stop serving SEC registrants,
further restricting the access of smaller companies to reasonably priced audit
services.
The SEC has proposed these new rules with no empirical evidence to support its
presumption that the prohibited services compromise independence. This proposal
also makes it likely that even the largest audit firms will not be able to
retain the specialist non-CPA experts that are necessary in today's technology
driven environment to perform quality audits of large and small enterprises.
This quest for theoretical purity will surely reduce the quality of audits,
limit access to auditing services and hurt the investing public that the SEC is
supposed to protect.
Regards,
Tammy A. Erickson, CPA
Author: "RONDA FAGGART" at Internet
Date: 09/22/2000 10:17 AM
Normal
TO: RULE-COMMENTS at 03SEC
Subject: File No. S7-13-00
------------------------------- Message Contents
** High Priority **
I am a CPA and I recently became a registered representative of Jefferson Pilot
Securities Corporation and obtained a life and health license as well. I am in
opposition to the SEC proposed guidelines to limit the scope of services
performed by accounting firms. For thirteen years I have wanted to be a
licensed representative and contribute all of my efforts in this area.
Unfortunately, in order to do this I would have had to change professions
entirely, until now. For the first time in my life I can combine the efforts
and have the most job satisfaction I have ever had, and I feel confident I will
be a tremendous asset to the public and to the SEC. The public deserves the
opportunity to work with a CPA/Registered Representative through a CPA firm.
They ultimately are the losers in your strict proposals, and I cannot begin to
understand why you do not agree, unless you do not fully comprehend the ethics
and compliance standards we already practice and have in place for all of our
attest service engagements. If you did understand our professional ethics and
standards, this would be an absolute no brainer. Isn' t this ultimately what
the SEC should be concerned about? It appears the SEC should poll the public,
ask them who they would rather do business with? I am 100% certain they would
select their CPA/Registered Representative if only given the opportunity. Don't
deny the public the very best, in doing so, the SEC, CPA and the public will all
be losers. What a tragedy for us all.
Life is opportunity, treasure it forever for the SEC could take it all away with
the swipe of a pen. Think of all who suffer because of this, and poll the
public for the real answers outside or your box, only here will truth and
justice be served.
Ronda G. Faggart, CPA
Author: at Internet
Date: 09/22/2000 5:27 PM
Normal
TO: RULE-COMMENTS at 03SEC
Subject: File # S7-13-00
------------------------------- Message Contents
September 20, 2000
Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 5th St. NW
Washington, D.C. 20549-0609
Dear Mr. Secretary:
In regard to the SEC proposal to limit CPA services, we strongly urge that
the proposed rules not be approved.
Our firm provides a wide range of valuable services to a client base that is
primarily agriculture-related. As you may well know, the vast majority of
farmers are struggling to stay afloat and with this proposal you would again
be dealing them another deadly blow. They rely heavily on information that
is obtained from these services to make the necessary decisions pertaining to
their farming operation. Every service from bookkeeping to financial
planning is most important to them.
My understanding of the effect of the proposal is that CPA's will not be able
to offer non-audit services to audit clients. Agriculture audit clients
would be forced to select two CPA firms in lieu of one. Because of the
inherent inefficiencies involved with dealing with two firms, it is
predictable that the total costs to the client will go up, while the quality
of services will go down.
We feel that you should strongly reconsider this proposal and the definite
negative effects to the farm economy.
Thank you,
Carrie Faudel
Latta, Harris, Hanon, & Penningroth, LLP
Certified Public Accountants
Iowa City, Iowa
Author: "Garbett; Larry; Mr; DCAA" at Internet
Date: 09/22/2000 12:19 PM
Normal
Receipt Requested
TO: RULE-COMMENTS at 03SEC
Subject: File No. S7-13-00
------------------------------- Message Contents
I support the SEC's proposed new rule requiring greater auditor
independence. I am of the belief that an external auditor should not also
participate in consulting or internal auditing type roles for the same
client. Independence is essential if the public is to have confidence in
audited financial statements.
Thank you,
Larry Garbett
Sr. Government Contract Auditor
& Pending Certified Internal Auditor
Tucson, AZ
Author: "Garcia; Marina L" at Internet
Date: 09/22/2000 3:24 PM
Normal
Receipt Requested
TO: RULE-COMMENTS at 03SEC
Subject: File No. S7-13-00
------------------------------- Message Contents
I support the SEC's proposed amendment regarding auditor independence
requirements.
As prescribed by the accounting and auditing standards, auditors must be
independent, in fact and appearance, in order to fulfill their
responsibilities to the public and government. When an external auditor
assumes the role of an internal auditor (i.e., performs internal auditing
services), his independence, or appearance of it, is hindered. More than
often, the monetary factor may influence their judgment in reaching a
conclusion. I commend the SEC's initiative and look forward to regulatory
accountability of the external firms.
Marina L. Garcia, CPA
Supervisor, Internal Audit
University of Miami
P.O. Box 248106
Coral Gables, FL 33124, #322
mlgarcia@miami.edu
Author: DONI FINDLAN at Internet
Date: 09/22/2000 10:14 AM
Normal
TO: RULE-COMMENTS at 03SEC
Subject: File Number S7-13-00 Auditor Independence
------------------------------- Message Contents
Kamphaus, Henning & Hood
Certified Public Accountants, Inc.
1000 Ohio Pike, Suite 5
Cincinnati, OH 45245
Telephone: 513-752-8350
E-mail: khhcpa@one.net
September 22, 2000
Mr. Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street
N.W., Washington, D.C. 20549-0609
RE: File No. S7-13-00
Dear Mr. Katz:
This letter is in protest of the Securities and Exchange Commission proposed
rules that would prohibit CPA firms from providing non-audit services to
their audit clients.
We are a small regional CPA firm the Greater Cincinnati, Ohio area. Our
firm has been providing accounting, auditing, consulting, and tax services
since 1972. In all these years, we have worked very hard to comply with all
rules and regulations handed to this profession and have successfully
completed Peer Reviews since the inception of that program. The business
climate has certainly changed in the past twenty-five years; technology has
changed this profession (and the world) considerably; the labor force is at
a thirty year low.
Many of our clients have trusted us with all aspects of accounting, tax,
auditing, and consulting and our firm enjoys an excellent reputation. Now,
the SEC is proposing rules that would limit the services we could provide to
our clients. If we conduct an audit, many of which are required by
government agencies, we would be prohibited from assisting the client in any
other area. This makes no sense to us; the accounting profession may be one
of the last places on earth a business owner can turn for discussions like
"what do you think about this?" or "what are the rules about this?" Where
else can they turn? Bankers, Attorneys, the Government? We think not.
We find this profession in a position now where we are seeing competition
for the services we provide from banks, credit card companies, and
department stores, everywhere! Is it not a conflict for a credit card
company to prepare a tax return? How about the IRS itself wanting to
prepare tax returns on line? Now the SEC wants to change the rules to make
it more difficult for us to remain in business. What next???
Yours truly,
Daniel P. Henning
Certified Public Accountant
Author: Jim Hudspeth <"jdhcpa"@worldnet.att.net (NO_SPAM)> at Internet
Date: 09/22/2000 3:56 PM
Normal
TO: RULE-COMMENTS at 03SEC
Subject: File Number S7-13-00 Auditor Independence
------------------------------- Message Contents
The current situation is a bit like driving around on
recalled tires. While we could get lucky and have no
disaster, the facts are clear and the warning has been
posted. It is time to act.
--
Jim Hudspeth, CPA -
http://home.att.net/~jdhcpa/mainpage.html - Washington, USA
Associate Member, Association of Certified Fraud Examiners
Author: "Ron Keister" at Internet
Date: 09/22/2000 12:52 PM
Normal
TO: RULE-COMMENTS at 03SEC
Subject: Comment File No. S7-13-00 - Testimony
------------------------------- Message Contents
SEC:
I would like to express my strong support for this SEC rules proposal
regarding the steps and controls needed to help ensure the audit
independence of CPA firms. These rules & steps are long overdue!
Thanks,
Ronald E. Keister, CPA, CIA
6170 River Forest Drive
Manassas, VA 20112-3045
gmuaud8r@aol.com
703-590-8267 - home
703-993-3093 - work
Author: Seth Kornetsky at Internet
Date: 09/22/2000 1:34 PM
Normal
TO: RULE-COMMENTS at 03SEC
Subject: File No. S7-13-00
------------------------------- Message Contents
I would like to voice my complete support for the sound and reasoned
proposal by the SEC that would prohibit CPA firms that perform the
financial statements audits from providing internal audit services to
the same firms. I
feel this is a good first step toward restoring public confidence in
external auditors and their independence.
Seth Kornetsky
Director, Internal Audit
Tufts University
Author: "vickie" at Internet
Date: 09/22/2000 9:59 AM
Normal
TO: RULE-COMMENTS at 03SEC
Subject: Reference file no.: S7-13-00
------------------------------- Message Contents
In reference to Reference File No. S7-13-00 and the SEC Proposal for restricting
services provided by CPAs
I am opposed to the position being proposed by the SEC with respect to limiting
non-audit services that may be provided by CPAs. I believe the conclusions
reached by the SEC are based on selected visible cases involving a few instances
in which the SEC observed conflicts. Let me state that I believe these
instances are not representative of our profession, and I take offense to the
assertion by the SEC that a CPA firm and its partners and employees cannot
provide business advisory services for audit clients. Note the position being
adopted by the SEC is contrary to the conclusions reached by the Panel on Audit
Effectiveness of the Public Oversight Board, whose genesis was at the request of
the SEC. The conclusion of this Panel was that no evidence existed to support
splitting advisory services from audit services. In fact, the study by the
Oversight Board concluded the quality of audits are fundamentally sound.
Let me describe an opposing view to the SEC supposition that a CPA cannot be
objective in an audit situation if that CPA firm is also providing business
advice to that same client. Based on my 23 years of experience in the
profession as a licensed and practicing CPA, I believe the numerous ways in
which we assist our business clients through various business advice, tax
planning and consulting services provides additional insight into a company, its
management team and their systems and business practices. This background and
insight is very useful in planning and conducting an audit of a company's
financial statements because of additional knowledge that is gained about the
business as noted above. Any attempt to separate the advisory services from
attest function appears to be an artificial cure for a perceived independence
problem for which there is no empirical evidence of a cause/effect relationship.
Finally, from a personal perspective the changes proposed by the SEC would be
damaging to me personnally as well as my firm by forcing audit firms to become
overly dependent on fees from audit services. This is especially difficult for
the thousands of CPAs serving middle market companies, irrespective of whether
their ownership is public or private. In addition, these proposed restrictions
would have a negative impact on recruiting and retaining employees. I do some
college campus recruiting for my Firm and I know how important it is to our new
professionals, as well as existing staff, to be exposed to other ways in which
they can provide value to our clients. To suggest that a CPA is not independent
to provide audit services as a result of providing other advice to clients is an
incorrect and damaging assumption.
I encourage you to abandon this proposal for restriction of the scope of
services that may be provided by a CPA firm and its employees.
Sincerely,
Jeff Lenz, CPA
Partner - McGladrey & Pullen LLP
Author: "Malagon; Blanca Aurora" at Internet
Date: 09/22/2000 11:25 AM
Normal
TO: RULE-COMMENTS at 03SEC
Subject: response to SEC sweeping rules
------------------------------- Message Contents
These are my comments regarding the "sweeping rules" being proposed by the
Commission:
I believe it's about time the SEC stepped in to provide oversight to the
monopolistic endeavors of the Big Five and restore the public's confidence
in auditors' opinion on financial statements. I think that in the last 15
years, the once well-defined line of independence that was promulgated by
AICPA and followed by certified public accountants has since been completely
eradicated in the public's eye. It is evident to the public at large (and
even more evident to practicing professionals) that such independence has
been lost. Therefore, I fully endorse the Commission's proposal.
The Commission should also proceed with caution when evaluating responses
submitted from certain professional organizations that are highly supported
or funded by the Big Five. This includes the AICPA and Institute of
Internal Auditors (IIA).
Blanca A. Malagon, CPA, CIA, CFE
University of Miami
1507 Levante Ave., room #312
Coral Gables, FL 33124
Author: "T M MAY" at Internet
Date: 09/22/2000 2:48 PM
Normal
TO: RULE-COMMENTS at 03SEC
CC: at Internet
Subject: Reference File No: S7-13-00
------------------------------- Message Contents
September 22, 2000
RE: SEC Proposed Rule to Limit Scope of CPA
Services
Reference File No: S7-13-00
I am writing to you regarding an unwarranted and intrusive government regulation
being initiated by the SEC that would adversely affect the accounting
profession. Most dangerous to the accounting profession is the likely prospect
that the proposed rule would set a precedent for other regulators. Even firms
that do not audit SEC registrants could be impacted by the proposed rules. The
SEC proposal would be viewed as the new model by state boards of accountancy, as
well as federal and other regulators and could influence the regulatory approach
to auditor independence outside the US as well.
The SEC has ignored the conclusion of the current Panel on Audit Effectiveness
of the Public Oversight Board, a Panel formed at the request of the SEC. The
Panel said it could find no evidence that the provision of non-audit services
has hurt audit quality and in numerous instances non-audit services contributed
to a more effective audit. The Panel concluded that, "both the profession and
the quality of audits are fundamentally sound."
The SEC admits that there is no empirical evidence that non-audit services have
compromised audit quality or auditor independence, nor ever caused an audit
failure. Yet the SEC has decided to move forward with this proposed rule without
facts or evidence.
The SEC lacks authority for its sweeping scope of services rule. The statutory
provisions cited by the SEC in the proposed rule do not expressly authorize the
SEC to make rules governing, regulating or restricting directly the accounting
profession, but pertain to public companies' filing of financial statements that
have been audited by independent accountants.
The SEC's proposed rule to restrict the services offered by accounting firms
represents a fundamental restructuring of a profession that has successfully
given investors the reliable, independent data they need for the past century. A
decision by a government agency to tell some business organizations what
services they may offer and to tell other businesses what services they can buy
is an extraordinary economic intervention without any empirical or other basis.
We think many Americans would find this a curious public policy position for
their government to take.
This scope of services rule must not be allowed to go forward.
Sincerely,
Tina May, CPA
109 N Meridian Street
Lebanon, IN 46052
Author: "Craig R. Melton" at Internet
Date: 09/22/2000 3:38 PM
Normal
TO: RULE-COMMENTS at 03SEC
Subject: File No. S7-13-00 - Proposed Rule: Revision of the Commissio
------------------------------- Message Contents
To whom it may concern:
I concur with provisions in the proposed rule on auditor
independence stating that certain non-audit services (e.g.,
internal audit), if provided to an audit client, would
impair an auditor's independence. I believe this rule will
enhance the integrity of our profession, and ensure that
firms that perform financial audits are independent in fact
and appearance.
--
Craig R. Melton, CPA
Audit Manager
Audit and Management Services
James Madison University
MSC 5703
Harrisonburg, VA 22807
phone: (540) 568-3708 fax: (540) 568-6620
e-mail: meltoncr@jmu.edu
web page: http://www.jmu.edu/audit
ALL OPINIONS EXPRESSED ARE MINE AND NOT NECESSARILY SHARED
BY MY EMPLOYER
Author: "Menendez; Mayra" at Internet
Date: 09/22/2000 2:47 PM
Normal
TO: RULE-COMMENTS at 03SEC
Subject: No. S7-13-00
------------------------------- Message Contents
I am expressing my support for the Commission's proposed "sweeping rules".
Auditor independence is key in providing assurance to investor's that
Financial Statements have been examined by an impartial and skilled
professional. Providing audit and non-audit services may result in a
conflict of interest with the client.
The proposed rules will enhance the public's confidence in financial
statements.
Mayra Menendez, CPA
University of Miami
Internal Audit Department
1507 Levante Ave. #314
Coral Gables, FL 33124
Author: "Moloney; Michael J." at Internet
Date: 09/22/2000 12:16 PM
Normal
TO: RULE-COMMENTS at 03SEC
Subject: Response to File No. S7-13-00
------------------------------- Message Contents
I would like to offer my endorsement and comments regarding the "sweeping
rules" proposed by the Commission. I think it sounds like a good step in
restoring confidence in accountants' opinions on financial statements. The
public and other stakeholders deserve to be able to have confidence in
published financial statements and in the independence of those who express
opinions on these statements. In particular, with regard to non-audit
services, the proposal appears to be a good first step; however, the
probation may be too narrow. In the future, the probation should probably
be extended so as to prohibit any of the Big 5 from providing such services
to any company whose financial statements are audited by any of the Big 5.
This is needed because of close inter-working relationships that currently
exist within these firms and because of their almost monopolistic position
in providing audit services to the Fortune 500.
It is clear from the AICPA's actions and the response to calls for action
over the past 20 years that self-regulation did not work. These calls for
action include the Coher Commission report, the Treadway Report, the
Advisory Panel on Auditor Independence's Report to the POB, and the GAO
report on the public accounting profession in 1996, among others. So it is
good to see that the SEC is finally stepping in. Once this phase is
complete, the SEC should then look at improving the quality and
effectiveness of audits. One way to make improvements should include
holding firms responsible for audit failures, which I would like to see
defined as instances when it is disclosed that there were misstatements in
the financial statements and the disclosure (i.e., the need for restatement)
results in a change in the companies' stock and/or bond prices by more than
15% (or some reasonable percent). Another method of making improvements
should be to make the firms responsible for reporting to the responsible
agency violations of law and regulations that they become aware of during
audits and holding the firms accountable for not identifying problems that
they should become aware of. There will and should be a lot of discussions
as to what further action needs to take place, but the discussions need to
be prompted by the SEC as meaningful discussions and changes probably won't
come from the profession itself without close oversight from the SEC.
I am a CPA, a CIA, and a CFE, and I don't believe the Commission should back
down on any element of the proposed rules.
Michael J. Moloney
Executive Director of Internal Audit
University of Miami
P.O. Box 248106
Coral Gables, FL 33124
Email: mmoloney@miami.edu
Phone: (305) 284-2605
Fax: (305) 284-2612
Author: "Oneson; Marvin" at Internet
Date: 09/22/2000 5:32 PM
Normal
TO: RULE-COMMENTS at 03SEC
Subject: File No. S7-13-00
------------------------------- Message Contents
Dear Sir or Madam:
I would like to make a few short comments to you regarding the new changes
being considered by the SEC regarding auditor independence. It is my belief
that you initiatives are misplaced. I believe that the Independence
Standards Board should be responsible for CPA independence issues.
I have been a CPA since 1986. I was an Audit Manager in a small 15 person
firm for many of those years. I am now an Audit Manager in a regional firm
in Ohio.
Overall, this seems to be a case of trying to fix something that isn't
broken. I have not heard of one audit failure which was caused by the lack
of independence now being addressed, or a case where these new initiatives
would have prevented the failure. It just seems to me as basic common sense
that the more you know about a client, the less likelihood there is that you
are going to get surprised by a material fraud after the audit is completed.
Mr. Levitt is trying to get the members in small firms to support this
initiative. I think is misplaced. I am one person from a small firm who
disagrees with most of Mr. Levitt's assumptions, ideas, proposals, and basic
beliefs about CPAs and independence.
Marvin Oneson, CPA
222 Barb Ct.
Heath, OH 43056
Author: Julia Smalley at Internet
Date: 09/22/2000 8:53 AM
Normal
TO: RULE-COMMENTS at 03SEC
Subject: File Number S7-13-00 Auditor Independence
------------------------------- Message Contents
AS A CPA WHO HAS BEEN PRACTICING FOR ALMOST 40 YEARS AND ONE WHO HAS
SERVED AS A MANAGING PARTNER IN CPA FIRMS FOR 30 OF THOSE YEARS, I AM
ABSOLUTELY AGAINST YOUR ATTACK ON THE PROFESSION.
PUBLIC ACCOUNTING HAS ALWAYS MAINTAINED AN ETHICAL STANDARD REQUIRING
INDEPENCE IN BOTH OWNERSHIP AND IN STATE OF MIND. CPA'S ARE ABSOLUTELY
NOT INFLUENCED BY THE SERVICES THEY PROVIDE TO THEIR CLIENTS.
THE BIG 5 FIRMS ARE MORE COGNIZANT OF CONFLICTS THAN THE LAY PUBLIC.
YOUR PROPOSED REGULATIONS AND THE MANNER IN WHICH YOU ARE TRYING TO
RAILROAD THESE RULES THROUGH ARE A DISGRACE. I URGE YOU TO STOP THIS
WITCH HUNT NOW!!!!
Author: Alex Tzoumas at Internet
Date: 09/22/2000 10:46 AM
Normal
TO: RULE-COMMENTS at 03SEC
Subject: File No. S7-13-00
------------------------------- Message Contents
Dear Rules Committee,
I have been an auditor for 20 years. During this time I have seen the
practice of public accounting become twisted and bent in search of greater
accounting firm partner profits. It is high time the SEC put out a
document like this. The very essence of independence is objectivity. How
can accountants/auditors claim to be independent when they must rely on the
management they are assessing to send more work their way? How can the
claim objectivity when about assessing the effectiveness of work done by
their own firm? Who can they claim objectivity when they have created
relationships with management which will only be around if the audit goes
well (i.e. greater profitability has been achieved)?
The whole idea of public accountants providing internal auditing services
is a farce. For one thing, the lack the expertise. But more importantly,
they work for management which is who should be held accountable for
detected deficiencies. What a conflict. The big 5 even advertise their
services by telling management that if they hire them, the report will go
to them versus someone truly independent, like the board and shareholders.
Please do not let anyone influence this very important rule.
Thank you
Alexander G. Tzoumas, CIA, CFE, CISA, MBA
Internal Audit Manager
University of Colorado
(303) 492-9732 Phone
(303) 492-9737 Fax
Alex.Tzoumas@cusys.edu
Author: Scott Webb at Internet
Date: 09/22/2000 4:48 PM
Normal
Receipt Requested
TO: RULE-COMMENTS at 03SEC
Subject: File No.: S7-13-00
------------------------------- Message Contents
September 22, 2000
Chairman Arthur Levitt
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Chairman Levitt:
I am writing to express my objection to the proposed rule change concerning
the independence issue of auditors and the providing of other services to
their clients. It is my understanding that the original impetus of this
bill is the issue of auditors owning the stock of their publicly traded
client.
I do agree that to the extent possible, auditors should not have a
"material" interest in the companies that they audit. Certainly, that
understanding has been historically limited to stockholder interests. This
rule expands the definition beyond that which we believe is necessary to
obtain a satisfactory level of independence. The proposed change would, in
my opinion, close the doors of communication that currently exist between
the audit firms and their clients. The effect would be to place blinders
and earplugs on auditors, and making them begin each audit without any
knowledge of their client's activities during the year. In the end this
will increase the cost of audits, increase the risk of undisclosed
activities to the public and decrease the ability of the auditors to ensure
that the accounting issues arising during the year are dealt with
effectively.
I think it is important to remember that the majority of registrants are
small companies and it is highly likely that the auditors have no stock
relationship with these entities, either directly or indirectly. To say to
those firms that you can only do the audit will cut their revenues and
place many at risk of not being able to render such services. This policy
then, also is exclusionary since only the larger firms will be able to
continue providing the attest services. The smaller registrants will have
to pay dearly for the limited assurance gained by this policy change.
I do not believe that the public is best served by rushing into a policy
which constitutes a sea change in the relationships established over the
decades. Instead, the period of comment and study should be extended to
determine if the policy will enhance independence or simply restructure the
providers of services and eliminate the continuity of information flow.
Nothing positive or of substance will be gained by the unnecessary
acceleration of this policy.
Sincerely,
Scott A. Webb, CPA
Author: at Internet
Date: 09/22/2000 11:13 AM
Normal
TO: RULE-COMMENTS at 03SEC
Subject: File No S7-13-00
------------------------------- Message Contents
I support the ruling that external auditors performing the financial
statement review should not also perform internal audit services.
Arlean Wehle
Tulane University
Author: at Internet
Date: 09/22/2000 5:16 PM
Normal
TO: RULE-COMMENTS at 03SEC
Subject: File #S7-13-00
------------------------------- Message Contents
September 22, 2000
Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 5th St. NW
Washington, D.C. 20549-0609
Re: SEC Proposal to Limit Scope of CPA Services
Dear Mr. Secretary:
In regard to the SEC proposal to limit CPA services, we strongly urge that
the proposed rules not be approved.
Our firm provides a wide range of valuable services to a client base that is
primarily agriculture-related. As you may well know, the vast majority of
farmers are struggling to stay afloat and with this proposal you would again
be dealing them another deadly blow. They rely heavily on information that
is obtained from these services to make the necessary decisions pertaining to
their farming operation. Every service from bookkeeping to financial
planning is most important to them.
My understanding of the effect of the proposal is that CPA's will not be able
to offer non-audit services to audit clients. Agriculture audit clients
would be forced to select two CPA firms in lieu of one. Because of the
inherent inefficiencies involved with dealing with two firms, it is
predictable that the total costs to the client will go up, while the quality
of services will go down.
We feel that you should strongly reconsider this proposal and the definite
negative effects to the farm economy.
Thank you,
Alan Winn
Latta, Harris, Hanon, & Penningroth, LLP
Certified Public Accountants
Iowa City, Iowa
Author: at Internet
Date: 09/22/2000 10:04 AM
Normal
TO: RULE-COMMENTS at 03SEC
Subject: File No. S7-13-00
------------------------------- Message Contents
September 22, 2000
Senator Robert Torricelli
United States Senate
Washington, DC 20510
Subject: File No. S7-13-00
Dear Senator Torricelli,
Recently a rule has been proposed by the Securities and Exchange Commission
that could negatively impact all CPA's and their clients, regardless of
size and whether they audit public companies. This proposed rule would
prohibit firms that audit public companies from providing certain non-audit
services to their audit clients including but not limited to bookkeeping
services, payroll services, systems design and implementation, valuation,
management consulting, financial planning, expert witness as well as other
services which are growing areas in local firms. If this restrictive rule
is adopted by the SEC, it is likely that comparable rules will be adopted
by individual state boards of accountancy, the Department of Labor, the
General Accounting Office, and bank regulatory agencies which will severely
limit the ability of all firms to fully serve the needs of their clients.
The relationship between auditors and their clients could be adversely
affected.
The following points should be noted with regards to the proposed rule:
· The SEC has based its decision to move forward with the rule without
facts or evidence. The SEC admits there is no empirical evidence that
non-audit services have compromised audit quality or auditor independence.
None of the studies or reports concluded that the scope of services
impaired audit effectiveness, or that an exclusionary ban was necessary.
· The SEC ignored the conclusion of the current Panel on Audit
Effectiveness of the Public Oversight Board that "both the profession and
the quality of audits are fundamentally sound." It also concluded that it
could find no evidence that the provision of non-audit services hurt audit
quality, but in numerous instances contributed to a more effective audit.
· This proposal would restrict public companies from freedom of choice
when seeking outside professional services. This would force public
companies to constantly choose whether to hire a firm solely as its auditor
or solely as a provider of other services.
· CPA's would be banned from acting as an advocate for an audit client,
or from providing expert services thus potentially prohibiting CPA's from
representing audit clients before the IRS.
· The proposed rule would impute to an accounting firm the activities of
virtually any entity with which the accounting firm has a commercially
valuable business relationship by viewing such an entity as an "affiliate
of the accounting firm."
· Accounting firms would be precluded from entering into almost any
joint venture or partnership in which it may have only an immaterial
investment.
· The SEC in a rush to regulate had adopted a schedule designed to avoid
Congressional oversight an preclude meaningful public participation. It
has waited until the 11th hour of the Clinton Administration to push
through a radical rule potentially restructuring the accounting profession.
It has not mentioned in each of the last 10 annual reports to Congress, any
concerns about the scope of services issue. It has limited to only 75 days
the period to comment on this proposal, including responding to more than
400 questions. The SEC has pre-empted the work of the ISB, which was set
up 3 years ago at the initiative of the SEC to develop a new conceptual
framework for auditor independence and appropriate implementing standards
and has not allowed time for important recent reforms to work, including
new disclosure and audit committee requirements required by the ISB, the
NYSE, the NASD, the American Stock Exchange and the SEC.
· If adopted there will be a negative effect on the recruiting and
retention of the best talent. Audit and non audit professionals will not
want to be at a firm where 25% to 40% of the market is "off limits". The
"audit-only" firms will have difficulty attracting the necessary talent
from accounting programs and from information technology programs because
of the limit in career opportunities, causing a possible degradation in
audit quality.
· The proposed rule is based primarily on alleged concerns relating to
the "appearance of independence" but not independence in fact. The SEC does
not have statutory authority to impose restrictions because of possible
perceptions of independence.
The proposal by the SEC to restrict services offered by accounting firms
represents a fundamental restructuring of a profession that has
successfully given clients reliable information during the past century.
It is not the authority of the SEC to restructure an entire profession as
well as tell business organizations what services they may offer and whom
they may by their services from. This scope of services rule must not be
allowed to go forward.
Sincerely
Teresa L Zipf
__________________________
Capaldi Reynolds & Associates
http://www.sec.gov/rules/proposed/s71300/0922b01.htm
