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:  "Tom Chambers"  at Internet
Date:    09/23/2000  5:37 PM
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TO: RULE-COMMENTS at 03SEC
CC: "AICPA"  at Internet
CC: "Tom Hood"  at Internet
Subject: File No. S7-13-00
------------------------------- Message Contents 
Dear Mr. Secretary:
     
I strongly oppose the SEC's proposed Rule on Auditor Independence.  I am a 
sole practitioner CPA with two employees, in a small rural community in 
Maryland.  My firm has approximately 20 audit clients for whom we also 
provide other advocacy services, which represents over 50% of my total 
volume.  If the proposed rule is adopted, most states will surely follow in 
the near future, and I would be disqualified from continuing to do this 
work.
     
I have been shocked at the haste with which your organization has tried to 
adopt this rule.  Surely, 75 days does not provide an adequate amount of 
time to allow meaningful public participation with such a far-reaching 
proposal.  In essence, the SEC is proposing a fundamental restructuring of a 
profession that has been giving investors the reliable and independent 
information they have needed for over 100 years.
     
As I recall, the SEC requested the Public Oversight Board to study the issue 
of audit effectiveness.  The panel that was assigned this task concluded that 
the quality of audits was fundamentally sound and found no evidence that the 
provision of non-audit services has hurt audit quality.  I have been in this 
profession for over 20 years (including 4 peer reviews with unqualified 
opinions as a sole proprietor), and my experience has been that providing 
non-audit services helps me perform a more effective audit.
     
In summary, the proposal is illogical and has been pursued irresponsibly. 
It should not be allowed to go forward.
     
Respectfully submitted,
     
Thomas S. Chambers, C.P.A.

   Author:  "donald henline"  at Internet
Date:    09/23/2000  6:40 PM
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TO: RULE-COMMENTS at 03SEC
Subject: independent audits
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sirs,
     
   I support trying to make audits independent from firms that consult to a 
company.  It only make common sense that a company will be much more fair in 
it's appraisal if the company does not have a large contract to consult to 
the same firm.  Afterall who like to give a bad audit to a company it is 
supposed to be consulting to.
Don Henline

   Author:   at Internet
Date:    09/23/2000  6:35 PM
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TO: RULE-COMMENTS at 03SEC
CC: fedleg@aicpa.org at Internet
Subject: File S7-13-00
------------------------------- Message Contents 
RE: Independence Proposed Rules
     
1.  SEC has all the authority but no responsibility.  It has always wanted to 
take over the audit function and detests private industry (CPAs) from doing 
it.  So why doesn't it just do it - take it over and quite wasting everyone's 
time with this type of nonsense?  No guts to do it?  Then shut up and sit in 
the corner where you belong.
     
2.  The AICPA has no guts to tell the SEC to get lost.  Why doesn't it 
propose that all auditors simply quit doing audits?  Sort of a strike.  Why 
does it waste its time and energy fighting proposed rules like these?  If the 
SEC doesn't like the way the audits are done, then let them do them itself 
(see number 3.)
     
3.  The SEC should take over the audits and hire all those auditors no longer 
employed by the accounting firms.  Assuming they want to work for the 
government that is.  Then the SEC can do whatever it wants because its own 
employees would be doing the work.  Of course they might not be able to find 
enough qualified people but they can always tap a back to work welfare program 
for live bodies.
     
4.  The AICPA detests auditors and all compliance work.  Just attend any of 
its conferences especially over the past decade.  All the leadership has done 
is denigrate auditors and anyone else doing compliance work.  The CPA must 
move up the food chain, the CPA needs to get into consulting, get out of 
compliance work, start a Web Trust, Sys Trust, Trust Trust, Up Trust, Over 
Trust, anything but auditing.
     
Only recently has the tune started to change as its membership has said to 
the leadership go stick it where the sun doesn't shine.  Thank you very much 
but we don't need portals, new designations, and most of that other crap you 
are trying to sell us.  This last PCPS conference in Las Vegas was more sales 
show then technical training.
     
5.  So why is the AICPA getting all upset over this rule change?  Just 
because it is stupid with no factual basis is no reason to get upset or think 
it is bad.  Most stuff out of DC is this way and has been for centuries. 
Chaos is great.  More business opportunities.  More money to be made picking 
up the pieces once it hits the fan.  
     
6.  The model that should be used is the IRS and taxes.  Congress passes 
laws, the idiots on paid staff implement, and the people file their returns 
prepared by individuals or practitioners who could be licensed or not and if 
licensed could be all the way from tax practitioners to CPAs or attorneys.
     
A sample of returns are picked and checked out.  Fights occur regularly and 
the courts eventually decide who wins assuming not compromised before then.  
     
Same idea with financial reports to the SEC. SEC has laws passed saying what 
they want.  The reports can be prepared by anyone.  Sample reports are 
selected and "audited" for compliance.  Fines made, prison terms, whatever 
just like the IRS.
     
As for financial markets, who cares.  If the NYSE, NASDAQ, etc don't like it, 
that's the way it goes.  Go write Congress.  The SEC isn't your baby-sitter. 
It wants good reports, clean reports, independent reports, but who cares what 
the reports say?  A person could uncover the largest fraud ever but if he 
isn't independent, as defined by the SEC, it is worthless.  Independence 
trumps all other issues.  Stocks move up and down every second based on 
everything from facts to rumors.  Never heard a stock move because of an audit 
report.
     
7.  Remember the SEC is great for proposing and weak to implement.  Take 
fines.  Just read an article where the President and CFO pleaded guilty to 
hyping (basically) a stock.  The SEC amended complaint proposed a $20 million 
fine.  Settled for around $2 million.  Wow.  Figure that one.  Probably won't 
collect a dime either.
     
8.  This is my input.  A plague on both your houses.  You, the SEC and the 
AICPA, deserve each other.  Neither gives a damn about reality only about 
show.  The AICPA asked for this and now it is crying.  Tough.  The SEC 
couldn't figure out how to correct a problem if it was laid in front of them. 
 This proposed rule change is just like DC thinking along the lines of "Did 
anyone unknown to you ask you to carry anything on board the airplane for 
them?"  Ever wonder what would happen if someone said yes?  Two last 
questions for the AICPA - who will audit the portal when all auditors own a 
piece of it, let alone trying to get your clients to buy office supplies from 
it which you own via stock ownership, and what the hell is a cognitor?
     
Jerry Levey
CPA, CFE, CMA
Jerry Levey Co.
4905 SW Griffith Drive, Suite 101
Beaverton, OR 97005-8724
503-646-8225; 800-551-2769
Fax 503-646-8823

   Author:   at Internet
Date:    09/23/2000  2:32 PM
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TO: RULE-COMMENTS at 03SEC
CC: fedleg@aicpa.org at Internet
Subject: RE: file No. S7-13-00
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The SEC proposed rule changing the independence for CPAs performing opinion 
audits on SEC registered companies is entirely too restrictive. As I read the 
proposed rule it will prohibit Licensed CPAs and CPA Firms from providing any 
other services except income tax preparation for an SEC company they perform 
attest services for. This will deprive SEC companies from receiving other 
needed services from the Professionals best qualified to perform them.
     
CPAs are licensed and regulated by State law. They are required to follow 
Professional Standards in all Attest and Non-Attest services. The proposed 
rule on CPA independence will encourage many NON-LICENSED ORGANIZATIONS to 
bid for these services. They will not be required to follow any Professional 
Standards.
     
The United States has the best regulated accounting profession in the world. 
The Proposed rule will not strengthen the Attest function in the publics eyes 
but will make it more difficult for the public to understand why CPA firms 
are having to split up to provide other needed services to businesses.
     
I do not believe this rule is in the public interest. I do not think the 
public would understand the United States Government telling SEC registrants 
who they can hire to provide non Attest Professional Services.  
     
Please do not pass this rule with the unreasonable independence requirements.
     
James B. Porter, Jr. CPA
September 23.2000
     
Member AICPA, MO Society of CPAs, National Association of State Boards of 
Accountancy

   
Author:   at Internet
Date:    09/23/2000  7:43 PM
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TO: RULE-COMMENTS at 03SEC
Subject: File # S7-13-00
------------------------------- Message Contents 
I do not think that your Auditor can be both an auditor and Consultant at he 
same time.  You cannot be the buyer and the seller!!!!
     
Thank you

   
Author:   at Internet
Date:    09/23/2000  3:35 PM
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TO: RULE-COMMENTS at 03SEC
Subject: SEC proposal S7-13-00
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    September 23, 2000
     
     
     
     
Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, N. W.
Washington, D. C. 20549-0609
     
Re: Proposed SEC regulation redefining auditors independence - Ref. No 
S7-13-00
     
Dear Mr. Katz:
     
I am totally opposed to the sections of this proposed regulation prohibiting 
auditors from performing numerous other services for our clients.  Having 
practiced in accounting for over twenty-five years, I believe the sections of 
this SEC proposal will have a tremendous negative impact on the future of my 
profession for the following reasons:
     
1. Little if any evidence of problem: There is the old adage "If it ain't 
broke, don't fix it."  From what I have read, the Panel on Audit 
Effectiveness of the Public Oversight Board (which your agency appointed) 
concluded: "both the profession and the quality of audits are fundamentally 
sound."  It is also my understanding that the Board found no evidence the 
provision of additional non-audit services has harmed the quality of my 
professions audits under the current regulations.  In fact, they found just 
the opposite.  The Board's findings included many instances where performing 
other services actually contributed to the effectiveness of the audit.
     
2. Severely overstepping its' authority: I am totally opposed to any 
government agency deciding it has the authority to tell a organizations of a 
certain industry what services they can offer, and then tell companies who 
depend on those services who they can contract with to obtain those services.
     
3. Next step become mandated for all non-SEC companies: If adopted by the SEC, 
probably most other industries would jump on the band wagon feeling it must be 
critical and therefore adopted by their industry.  If adopted by such agencies 
as the DOL, financial institution regulators, etc. it would have a tremendous 
negative financial impact on many smaller businesses or organizations covered 
by these agencies.
     
4. Confusing to public if not uniformly adopted: Auditor independence has 
long been critical in the public's perception.  If different regulators 
require different independence criteria, it will undermine public confidence. 
 Currently, independence standards are basically the same.  One regulator 
going off and adopting its own guidelines, may soon be followed by another 
agency establishing their own criteria, followed by another regulator with 
different guidelines.  These actions would do nothing but undermine the 
public's understanding and confidence in what independence means.
     
5. Open Pandora's box: If the SEC can establish criteria, why not others - 
regulators, courts, IRS, other countries, etc.?  We are moving into a global 
world.  We don't want to open the floodgates and allow anyone to set their 
own independence criteria.  If various groups start establishing their own, 
where will it end?  It is certainly possible for situations to arise where no 
auditing firm could be independent.  This could arise due to conflicting 
regulatory requirements in a company's diversified operations (different 
segments governed by conflicting regulatory body independence requirements), 
or conflicting countries requirements for a business with world-wide 
locations.
     
6. Damage CPA client relationships: CPA audit firms would become gun shy 
whenever their client asked a question.  Where does the definition of 
consulting begin and end.  What happens when an auditor is reporting on an 
internal control problem found in the audit and the client asks how to fix 
it?  If the auditor answers, isn't this consulting?  Where do you draw the 
line?  The possible conflicts are endless.  Could an auditor be set up by 
unethical management to perform additional services in border line issues, 
then use those situations later as a leverage against the auditor?
     
7. Severe financial harm to most smaller businesses that require audits: Many 
businesses and organizations do not have the financial resources to afford 
highly trained in house accounting professionals.  Currently these entities 
are probably not governed by the SEC.  However, due to likely impact 
identified in item #3 above, they could become governed by rules similar, if 
not identical, to the SEC independence requirements.  The accounting 
personnel these companies can afford do not have the sophistication to 
understand highly complex FASB, SEC, AICPA, DOL, financial institution, 
not-for-profit, tax versus book depreciation, etc. requirements.  They look 
to their auditor to assist in these areas.  This potential snowball affect of 
this proposal would effectively require smaller clients to hire two CPA 
firms; one to help them prepare the financial statements in compliance with 
all of the appropriate regulations, and another firm to do the audit. 
Effectively this proposal would require smaller companies to pay the expense 
for two CPA firms to really understand their business and make sure they are 
in compliance with all regulations.  This would be financially devastating to 
many of my clients in areas such as small employee benefit plans regulated by 
the DOL, financial institutions such as small credit union's, not-for-profit 
organizations required for various reasons to have audits, etc.
     
8. Limit competition: Many firms are merging to stay competitive.  The 
proposal would further restrict competition.  Firms would be forced to elect 
in many instances whether to be auditors or provide other services. Therefore 
the pool of CPA firms qualified as auditors would decrease significantly.
     
9. Limit the college graduate and CPA licensed accounting pool: A significant 
number of CPA firms provide audit and other services.  Audit experience is 
required in most states to become licensed as a CPA.  This allows college 
graduates a selection between many firms that have enough audit clients so 
they can become licensed as CPA's.  However, this proposal would effectively 
decrease the number of firms where candidates can gain their experience, 
therefore decreasing the number of employees and firms' employment options.
     
10. Severely damage the CPA designation: The main perception of the public is 
that CPA's are qualified auditors, with many becoming very proficient in 
other areas such as tax, business valuations, estate planning, etc. However 
under this proposal, many firms will be forced to drop their audit business. 
Therefore increasing the public's confusion as to whether a CPA is an 
auditor, or just what does that designation mean.
     
11. Financially devastate firms: One of the reasons CPA firms have branched 
out into other non-traditional areas is due to regulatory interference.  The 
government has forced many businesses to switch to calendar year ends.  This 
severely impacted many CPA's causing them to work like slaves during tax 
season, and branch out into other areas just to put food on the table the 
rest of the year.  We don't need more regulatory interference that will only 
further damage the effectiveness in practicing our profession.  We are having 
enough problems right now attracting college candidates into accounting, 
without adopting the SEC proposed independence regulations that will only 
increase the shortage.  Also, many firms have formed various industry and 
regional alliances in order to be more effective and serve their clients 
needs.  This proposed regulation could destroy many of those alliances.
     
12. Minimal exposure and comment period: This proposal appears to have been 
thrown together very rapidly, given a minimal exposure and comment period, 
and inappropriately coat-tailed onto other provisions the accounting 
profession wants for the sole purpose to increase the likelihood of passage. 
Whenever a regulatory agency ignores the recommendations of an independent 
board, it brings to question whether the proposal is really in the public's 
best interest or is the personal agenda of a few.  Why was this Board 
established spending several years researching and developing recommendations 
based on in-depth research to only have their recommendations ignored?  Why 
was a proposal just the opposite quickly thrown together, published, and 
pushed to implement as fast as possible?  There appears to be more behind 
this proposal than what appears on the surface.
     
In conclusion I am totally opposed to the independence recommendations in 
this S7-13-00 proposed regulation.  I hope that what appears to be the 
majority in my profession and the public will have your support in 
eliminating and defeating this portion of the proposal.
     
    Sincerely,
     
     
     
    Michael D. Tobler, CPA

   Author:  "grturner"  at Internet
Date:    09/23/2000  12:27 PM
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TO: RULE-COMMENTS at 03SEC
Subject: File No. S7-13-00
------------------------------- Message Contents 
I would like to comment on the SEC mandate to bar public accounting firms from 
also performing consulting work for clients that they do external audit work 
for.
     
During my last internal audit position at a medium sized regional bank here in 
Santa Barbara California, I had the experience of a first hand example of 
conflict of interest with the firm Arthur Andersen. I was the General Auditor of
the bank for 18 years and during this time Arthur Andersen was retained to do 
the annual directors audit. They were also used extensively in consulting for 
the bank. On the occasion I mention, AA had been retained to assist the bank in 
improving their rating in the consumer compliance area. As the General Auditor 
and manager of compliance, I worked very closely with them in their consulting 
assignment. During this period I had completed an internaL audit on one of the 
bank's large deparment that handles Tax Refund loans. It was discovered they 
were in substantial violation of the the Fair Credit Reporting Act and this was 
written up in the findings and reported to management. When the AA manager in 
charge of their engagement read my report, he requested me to suppress this 
write up of the compliance violation from the final report. He cited as his 
reason the fact that he did not want the bank's regulatory authority to be able 
to read the report that would surely point them to the violation of law. My 
reply to the AA manager was that if he could prove to me that my finding was not
accurate or in error, I would remove it from the report, otherwise it stayed as 
far as I was concerned. In the end the finding was not disproved but AA 
convinced management to suppress the write-up.
     
In my opinion the SEC is right on the mark when they argue that it is a conflict
of interest for a big 5 firm to do consulting for a client for which they are 
the independent auditor. I hope you are successful in preventing them from doing
consulting in this fashion. Keep up the good work!
     
Gary Turner
grturner@msn.com
     
     

   Author:  "WILLEY & COMPANY; CPAs"  at Internet
Date:    09/23/2000  5:26 PM
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TO: RULE-COMMENTS at 03SEC
Subject: S7-13-00
------------------------------- Message Contents 
Jonathan G Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, NW
Washington,  DC  
     
     
Dear Mr Katz;
     
The purpose of this letter is to express my strong opposition to the 
Commission's proposed rule which would radically alter the definition of 
independence for certified  public accounting firms that audit SEC companies. 
This is the most significant change in the rules governing auditor independence 
since the federal securities rules were enacted in the 1930s.
     
My understanding is that your own study panel; one formed expressly to consider 
the integrity of the audit profession (and its product), reported that there is 
no problem.  In the panel's own words, "both the profession and the quality of 
audits are fundamentally sound".
     
If the Commission's concern is the appearance of independence, then I suggest 
you look beyond the appearance to the substance of the issue.  That is what we 
in the profession are required to do every day.
     
As a young boy I learned a valuable lesson from my father; IF IT AINT BROKE, 
DON'T FIX IT.  I urge you to apply that principle in your diliberations 
concerning this proposal.
     
Respectfully,
     
Robert L Willey, CPA
September 23, 2000