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:  Ralph Albert Thomas  at Internet
Date:    09/22/2000  4:25 PM
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TO: RULE-COMMENTS at 03SEC
Subject: Reference file No.: S7-13-00
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                                September 22, 2000
     
     
Mr. Jonathan G. Katz
Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609
     
RE: Comments on Proposed Rule- File No. S7-13-00
     
Dear Members of the Commission:
     
On behalf of the N.J. Society of CPAs' 14,000 members, we strongly urge you 
to remove the "scope of services" section from the above referenced rule 
proposal regarding auditor independence. We believe that this part of the 
proposal, severely limiting the non-audit services a firm could provide to 
audit clients, is unnecessary and could have a devastating impact on 
accounting firms and the businesses and public they serve.
     
The NJSCPA believes it is inappropriate to tie the modernization of 
financial interest and family rules, which we support and believe are long 
overdue, to the highly controversial scope of services proposal. 
Modernization of these financial-interest standards can and should occur on 
an expedited basis, independent of the scope of services initiative.
     
We feel that the impact of the proposal will probably go beyond large 
accounting firms that audit public companies.  Firms of all sizes are likely 
to be impacted when state boards of accountancy and other government 
entities attempt to harmonize their rules with those of the SEC.
     
We note the lack of any material evidence to support the conclusion that 
providing non-audit services has impaired independence or audit quality. The 
proposed rule ignores the conclusion of the current Panel on Audit 
Effectiveness of the Public Oversight Board, a panel that was formed at the 
request of the SEC. That panel concluded that "both the profession and the 
quality of audits are fundamentally sound." The panel said it could find no 
evidence that the provision of non-audit services has hurt audit quality. On 
the contrary, it concluded that in numerous instances non-audit services 
contributed to a more effective audit. 
Perhaps most importantly, we are deeply concerned about the process by which 
this proposal has been moving forward.  Specifically, we are referring to a 
schedule of hearings that avoids Congressional oversight; the introduction, 
at the eleventh hour of the Clinton Administration, of a rule to restructure 
the accounting profession (in each of the last 10 annual reports to 
Congress, the SEC has not mentioned any concerns about the scope of services 
issue); and the unduly short comment period of 75 days.
Furthermore, this proposal ignores the work of the Independence Standards 
Board, set up three years ago at the initiative of the SEC, to develop a new 
conceptual framework for auditor independence and appropriate implementing 
standards. It also does not allow time for important recent reforms to work, 
including new disclosure and audit committee requirements adopted by the 
ISB, the NYSE, the NASD, the American Stock Exchange and the SEC. 
Thank you for considering our views on this important issue.
     
Sincerely,
 <<...>>  <<...>> 
Sharon L. Lamont, CPA                   Ralph Albert Thomas, CPA 
President                                       Executive Director
     
     
 <<...>> 
Michael A. Polito, CPA
President-Elect

    Author:  "Lou H. Mills"  at Internet
Date:    09/22/2000  5:45 PM
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TO: RULE-COMMENTS at 03SEC
CC:  at Internet
CC: "Robert L. Bunting"  at Internet
CC: "Ed Drosdick"  at Internet
CC: "Neal West"  at Internet
CC:  at Internet
Subject: S7-13-00
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To Whom It May Concern:
     
I protest the proposed SEC scope of services rule that would prohibit 
accountants from offering both audit and non-audit services to clients.  If we 
had to work under the SEC's proposed ruling, we would be hobbled in delivering 
our services, which benefit everyone, including the SEC, the investing public, 
and our clients.  For instance, the regulations will prohibit us from 
representing our audit clients before the IRS.  Because of such strictures, our 
competitive health will be compromised.  And our potential for growth will be 
crippled because of regulatory limitations on our right to form partnerships and
joint ventures.  Regulations would make mergers unmanageably complex. 
     
Typical of many mid-sized businesses, we are trying to diversify and make our 
services competitive.  Our business clients hire our expertise for many reasons.
  We are their source not only for audit functions but also practical advice on
the many systems, controls and policies they must follow to be successful.  Your
proposed audit-independence rules promise enormous fee increases on the part of 
CPAs who will be restricted to audit services.  Only firms that can afford Big 
Five services will have access to audit services because most firms below that 
level will stop serving SEC registrants.  
     
I am also disturbed that you are attempting to restructure my profession without
Congressional oversight or public participation, and at a time of political 
transition.  This appears to be a flagrant misuse of the SEC's mandate.  What's 
more, you have proposed these new rules with no empirical evidence that they 
will result in any increase in audit independence or effectiveness.  The SEC has
issued these proposals despite insufficient research into how accountancy 
services function to speed the growth and health of American business.   If you 
would apply closer scrutiny to actual accounting practices you would find that 
non-audit services contribute to a more effective audit.  Restructuring this 
profession will unnecessarily disrupt a service industry that has for the past 
century given investors the reliable, independent data they need.  
     
Finally I would like to bring your attention to another side effect of your 
proposed rules.  At my company we maintain a large staff of seasoned 
professionals and new talent, drawn to us by the variety of tasks we call on 
them to perform.  Perhaps the most disastrous fallout from this initiative would
be its long-term effect on the face of American accounting.  Young people coming
out of accounting programs may not choose to direct their careers into jobs that
are encumbered by excessive limits imposed by government regulation.  The best 
of them will go to industries with greater promise.  
     
This extraordinary economic intervention is a curious public policy position for
our government to take.  I think many Americans will see that if these proposals
are enacted, they will ultimately hurt the investors whom the SEC is chartered 
to protect.  
     
This scope of services rule must not go forward.
     
Regards,
     
     
Lou Mills
Louis H. Mills
Phone:  206-447-4253
     

    Author:  "Joel L. Powell"  at Internet
Date:    09/22/2000  5:24 PM
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TO: RULE-COMMENTS at 03SEC
Subject: S7-13-00
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I am writing to comment on the proposed SEC rule significantly restricting 
non-audit services to CPA firm's attest clients.  My firm generally provides 
services to smaller SEC registrants that tend to require additional assistance 
to comply with SEC reporting requirements.  The rule proposed by the SEC will 
effectively preclude us from providing these needed services which we believe 
benefits the SEC, the client and outside investors.
     
Smaller registrants rely on their CPA firms to perform needed advise on the many
systems, controls and policies they must follow in order to be successful in 
business and comply with regulations.  It will be very difficult for these 
businesses to segregate their CPA relationship into multiple ones in order to 
comply with the proposed independence rules.  I believe many well-qualified CPA 
firms may refuse to provide audit services which will eventually restrict 
smaller companies from obtaining reasonably priced audits.
     
I appreciate the general objective of the SEC, to increase the quality and 
objectivity of the independent audit process.  However, I believe a rule of 
these consequences should only be implemented based on empirical evidence and 
adequate due process.  I understand the current Panel on Audit Effectiveness of 
the POB recently concluded it could find no evidence that the provision of 
non-audit services has hurt audit quality.
     
Based on the above, I am urging the SEC to reconsider and eliminate its proposed
rule.  Alternatively, the following "compromises" should be considered.
     
1.  Require full disclosure to the entity's board and the investing public of 
amounts paid to the registrant's audit firm for audit and non-audit services.
     
2.  Establish limits of the percentage of total fees paid by any one registrant 
to its audit firm to the firm's total revenues before independence would be 
judged to have been impaired.  (i.e. Is there really empricial evidence to 
suggest that a firm would allow its objectivity and judgment to be impaired over
a client whose fees represent a small percentage [say 1%] of its total revenue?)
     
     
Repectfully submitted,
     
Joel L. Powell
Phone:  (541) 686-1040
Fax:  (541) 686-9673
e-mail:  joelp@mossadams.com
     
     

    Author:  "Jeffrey Rovner"  at Internet
Date:    09/22/2000  11:10 PM
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TO: RULE-COMMENTS at 03SEC
Subject: File No. S7-13-00
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I want to support the SEC's  efforts to force the separation of
non-auditing consulting services from auditing services. The public interest 
is only served by public audits if we can be certain that they are not 
influenced by the need to retain other business.
     
Further, in the interests of public disclosure, I would like to condemn the 
practice of 'sealing the record'  when cases are settled with companies. The 
work of the SEC is public, and all records must be public.
     
Thank you,
     
Jeffrey Rovner
5385 n Bowmanville
Chicago Il 60625

    Author:  "Mike Tayloe; CPA"  at Internet
Date:    09/22/2000  6:40 PM
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TO: RULE-COMMENTS at 03SEC
CC:  at Internet
Subject: S7-13-00
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In general, I support the intent of your proposal. I have noted instances where 
CPA's have behaved in a less than circumspect manner. In this instance however, 
I think your solution is much larger than the problem.  As a local practitioner 
I am concerned with the trickle-down impact of your regulation on the state 
regulatory boards.  We at the local level are being squeezed out of new 
opportunities due to archaic and draconian regulations now and do not need you 
promoting more of the same.
     
With cooperation from all the parties, we can resolve the real and perceived 
problems without destroying the accounting profession in the process.
     
Mike Tayloe, CPA