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:  "Catalina Bosch"  at Internet
Date:    09/27/2000  1:49 PM
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TO: RULE-COMMENTS at 03SEC
Subject: RE:  S7-13-00
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Dear Sir or Madam:
     
I sincerely applaud the SEC's efforts to open company financial disclosure 
to the public and not just portfolio managers.  At the same time, I am quite 
concerned with the true disclosure of facts.  My husband and I are modest 
investors and have been victims of this untimely non-disclosure.  Timeliness 
is of the essence and companies owe investors the utmost consideration for 
the faith entrusted.  Likewise, a good faith effort to disclose information 
on a timely manner, is necessary for individual investors to make 
appropriate choices for their future, and that of their families.
     
This late in the year, we are now learning about management problems 
occurred earlier in the year, which have enormously compromised the value of 
the stock and the capital we invested.   I do understand caution must be 
taken in disclosing information.   While this is a very complex market where 
information is bought and sold and companies values rise  and fall daily in 
an sometimes illogical pattern, companies owe investors the truth in a 
timely fashion.  This type of disclosure would force companies to be more 
feasibly efficient, and perhaps overpaid CEO's would become a past event.
     
Seriously, as a concerned citizen, parent, and business woman I ask that the 
SEC continue  to  send out a strong message to companies, to warn them that 
compliance and good faith disclosure on a timely manner are not voluntary 
choices, but a fiduciary duty owed to even the least of investors.   Thank 
you for hearing my concern and for your far reaching efforts in enforcing the 
laws concerning the public interest of all investors.
     
Yours sincerely,
     
Catalina Bosch

  Author:  Susan Ivancevich  at Internet
Date:    09/27/2000  2:04 PM
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TO: RULE-COMMENTS at 03SEC
Subject: Comment Letter on SEC Independence Proposal
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Below is a comment letter regarding the SEC Independence Proposal.  Thank 
you for your consideration.  (I sent it yesterday but wanted to resend it 
in case you did not accept attachments).  Thank you.
     
     
September 25, 2000
     
     
     
Arthur Levitt, Chairman
Securities and Exchange Commission
SEC Headquarters
450 Fifth Street, NW
Washington, DC 20549
     
Dear Chairman Levitt,
     
We understand your interest in the very important issue of auditor 
independence, and believe that your focus on this matter is both timely and 
relevant.  We agree with many of the provisions in the proposed 
regulation.  However, we are concerned about whether the use of SEC 
regulatory authority, which will radically change market dynamics, is 
necessary in accomplishing your goals with respect to improving auditor 
independence and thereby helping to maintain the integrity of the financial 
markets.  If your concern truly lies in the area of auditor independence, 
why not focus your efforts on the audit activity rather than wondering far 
a field in non-audit activities?
     
We offer two proposals that would advance auditor independence while at the 
same time minimally interfering with market dynamics.   Our proposals deal 
with audit fees and auditor interaction with audit committees.
     
First, we urge the SEC to focus on insuring that auditors of public 
companies are adequately compensated for their audit services.  For 
instance, we believe that the use of a $1000 audit fee for a dot.com audit 
engagement in hopes of gaining future management advisory service revenues 
more seriously imperils auditor independence than many of the issues you 
raise in your proposed regulation. To curb such activity, the SEC could 
regulate that auditors would violate independence rules if they make an 
investment in their clients in the form of significantly reduced audit 
fees.  Regulatory guidance would also be required to prevent auditors from 
providing these other services at no cost or significantly reduced rates, 
as a hidden subsidy to the cost of the audit.  Firms would be required to 
self regulate this data and the information would be subject to the peer 
review program.
     
Adequate audit fees would not eliminate inefficient audits but would help 
curb any tendency for auditors to "eat time" or to cut corners in 
conducting the audit, thus improving audit quality and potentially reducing 
apparent or real audit failures.  Further, realistic compensation may 
motivate talented people to stay in the audit practice rather than 
transferring to more lucrative consulting practices or seeking employment 
with the firms' clients.  If the SEC were to prohibit substandard "low 
ball" audit fees, the other advisory services become less important and the 
same firm may in fact independently perform the non-audit services for 
audit clients since audit partners and staff would not be as financially 
reliant on profits from those other services.  A knee jerk reaction to this 
proposal is likely to be that audit fees are high enough already and we do 
not need a regulation that may increase them.  However, this proposal would 
have little, if any, impact on the audit fees of most public companies 
where auditor compensation is already reasonable.  What it would affect are 
low-ball audit fees set primarily to gain non-audit service clients.  This 
is where the independence issue often begins.
     
Second, the SEC should seek to bolster auditor independence by further 
strengthening required communications between the auditor and the Audit 
Committee. Traditionally, the focus of auditor communications has been on 
the management, with Audit Committee involvement often only at the 
beginning and end of the audit. This focus should shift to ongoing 
communications between the auditor and an independent audit committee with 
management becoming involved only when the Audit Committee seeks input or 
when the auditor seeks information for analysis that only management can or 
should provide.
     
For example, Audit Committees should be required to ask auditors if they 
will consent to continue as the independent auditor for the company, fees 
that adequately compensate auditors should be agreed between the Committee 
and the auditors, and problems encountered during audits should be promptly 
communicated to the Audit Committee who should be involved in the 
resolution process. This is not to suggest that management not be involved. 
Rather, it is designed to continuously remind all parties that the auditors 
serve the Board of Directors in fulfilling their fiduciary responsibility 
to shareholders. Critics might say this will require more work on the part 
of independent directors. This may be true, but only in those instances 
where problems exist and increased involvement by the Audit Committee is 
warranted. It will put an end to situations where Audit Committees are 
surprised when they first find out about problems at the end of an audit.
     
Thank you for your consideration of our views.  We would be happy to 
provide a more detailed discussion of our proposals should you so desire.
     
Respectfully submitted,
     
Tom Keaveney
Executive in Residence, University of North Carolina at Wilmington 
and Retired KPMG Partner
     
Joanne Rockness
Cameron Professor, University of North Carolina at Wilmington
     
Susan Ivancevich
Assistant Professor, University of North Carolina at Wilmington
     
Susan H. Ivancevich, Ph.D., CPA
Assistant Professor of Accounting
Cameron School of Business Administration 
University of North Carolina at Wilmington 
601 S. College Road
Wilmington, NC 28403-3297
(910) 962-3969
(910) 962-3815 (fax)

    Author:  Gordon Longerbeam  at Internet
Date:    09/27/2000  4:37 PM
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TO: RULE-COMMENTS at 03SEC
Subject: File No. S7-13-00
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I believe strongly that the SEC should rule on  the side of investors 
when examining the issue of Auditor Independence.  The audit function 
should be clearly separate from and independent of any consulting 
services to the audited firm.  SEC needs to protect the investing public 
from any conflict of interest in these issues.