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U.S. Securities and Exchange Commission

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 Normal TO: RULE-COMMENTS at 03SEC Subject: RE: S7-13-00 ------------------------------- Message Contents 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 Normal TO: RULE-COMMENTS at 03SEC Subject: Comment Letter on SEC Independence Proposal ------------------------------- Message Contents 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 Normal TO: RULE-COMMENTS at 03SEC Subject: File No. S7-13-00 ------------------------------- Message Contents 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.


http://www.sec.gov/rules/proposed/s71300/0927b01.htm


Modified:10/04/2000