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:  "Chris Brown"  at Internet
Date:    09/28/2000  8:43 AM
Normal
TO: RULE-COMMENTS at 03SEC
CC:  at Internet
CC:  at Internet
Subject: Reference File No.: S7-13-00
------------------------------- Message Contents 
     
     
     
Dear Jonathan G. Katz, Secretary Securities and Exchange Commission:
     
As an accountant in public practice, I wish to take this opportunity to 
offer my
opinion regarding the proposed Securities Exchange Commission (SEC) 
regulation "Revision of the Commission's Auditor Independence Requirements; 
Proposed Rule, 65 Fed. 43, 148 (2000)," (the proposal). This opinion is 
offered prior to the close of the proposal comment period, which  expires 
September 25, 2000.
     
I firmly believe the proposal, as currently written, is unwarranted, not 
supported by facts, or requested by the financial and business community we 
both serve. Non-audit services offered by audit firms simply have not 
compromised auditor independence or added to audit failure. I offer and 
believe the following support my position concerning the proposal.
     
·         Audit firms have an excellent history, awareness and attitude of 
maintaining, observing and adhering to the Independence Rules. Audit firms 
are well aware of the Independence Rules in regard to non-audit services 
offered by audit firms. The Independence Rules are the first and most 
understood rules of audit firms. The Independence Rules for audit firms are 
the first rules within the Code of Ethics and the first functional area 
referenced in the Quality Control Standards as promulgated by the AICPA. 
There cannot be any misunderstanding concerning the importance of the 
Independence Rules by audit firms or the public.
     
·         I cannot see a problem concerning audit firms violating the 
Independence Rules as they relate to non-audit services. I am curious what 
facts and circumstances were used by the Commission to determine that the 
"Scope of Services" offered by audit firms has resulted in substandard 
engagements through financial and auditing standards violations, since even 
the SEC admits that there is no empirical evidence that non-audit services 
have compromised audit quality or auditor independence, or even caused an 
audit failure.  None of the studies or reports cited by the SEC concluded 
that the scope of services impaired audit effectiveness, or that an 
exclusionary ban was necessary or appropriate.  I do not believe there is 
factual support for the need for such a dramatic change relevant to the 
"Scope of Services" offered by audit firms.
     
·         In the last 10 annual reports to Congress, the SEC has not 
mentioned any concerns regarding the "Scope of Services" offered by audit 
firms. Where has this concern originated?
     
·         It appears to me that the SEC has ignored the conclusions of the 
SEC's Panel of Audit Effectiveness of the Public Oversight Board. This SEC 
appointed panel concluded, "both the profession and the quality of audits 
are fundamentally sound." The Panel did not find any evidence that the 
provision of non-audit services negatively impacted audit quality. In fact, 
quite the opposite - the Panel instead noted that "in numerous instances 
non-audit services contributed to a more effective audit."
     
·         The proposal greatly restricts the ability of the public to 
benefit from the knowledge possessed by audit firms. The financial and 
business community will be forced to undertake procedures which are highly 
inefficient and costly in both time and expense to procure needed non-audit 
services from those that simply do not have the knowledge and understanding 
possessed by an audit firm.  Public companies' freedom of choice in 
selecting outside professional services will be restricted.  The SEC will be 
forcing public companies to constantly choose whether to hire a firm solely 
as its auditor or solely as a provider of these other services, when the 
audit firm may be the best provider for both.
     
·         In that same regard, the proposal's broad restriction on non-audit 
services will in itself, undermine auditor independence by making audit 
firms too reliant and dependent on audit fees. This dependence by audit 
firms on audit fees would not serve the public interest.
     
·         Although the proposal does clearly state that it "would not effect 
tax-related services" provided by audit firms to audit clients and 
references only compliance services provided by audit firms to audit 
clients,  it would prohibit an audit firm from acting as an advocate for an 
audit client, providing expert service in administrative proceedings, and 
logically prohibit audit firms from representing audit clients before the 
Internal Revenue Service.
     
·         The proposal would create a negative effect on the ability of 
audit firms to recruit and retain the best talent. Professionals would not 
be interested in or challenged to work with firms in which 25% - 40% of the 
current market would not open to them to practice. This prohibition 
concerning the ability of professionals to perform either audit or non-audit 
services within a firm would limit the attractiveness of firms.  Simply put, 
the best will elect to enter a profession in which their ability to perform 
would not be limited.
     
·         The proposal prohibits audit firms from entering into almost any 
joint venture or partnership with any entity which may offer non-audit 
services to the audit firm's audit client. In addition, this proposal also 
prohibits an audit firm from participating in beneficial economic activities 
and business relationships. These independent, legal and sound relationships 
would be prohibited because the entities participating would be treated as 
"affiliates of the audit firm."
     
·         The proposal will place new independence requirements between 
audit firm members within regional alliances, associations and cooperative 
agreements with respect to the audit clients of each other.
     
·         The impact to all audit firms, regardless of having SEC audit 
clients or not, will be dramatic. Other regulators will use the proposal, if 
adopted, as a model. This "model" may be used by state boards of 
accountancy, other federal regulators, (i.e., banking and ERISA areas of 
audit practice) and other regulators.
     
I believe the significance of this impact requires the SEC to reconsider the 
timing of the proposal because:
     
·         The 75-day comment period is entirely too short to permit 
meaningful and timely public input. This short comment period does not 
permit collecting and analyzing the huge amount of data required, nor does 
it provide enough time to formulate meaningful and viable alternatives for 
regulating the "Scope of Services" offered by audit firms.
     
·         Three years ago the SEC set up the Independence Standards Board 
(ISB). I believe the work of the ISB is being pre-empted by this proposal. 
The ISB, as originally charged by the SEC, was to develop new concepts and 
framework regarding auditor independence and related implementation.
     
·         Recently, the ISB, NYSE, NASD, American Stock Exchange and the SEC 
have adopted new disclosure and audit committee requirements. This proposal 
and its timetable have not given enough time for those requirements to 
mature and work.
     
·         The proposal's timetable has been presented in the last days of 
the current Presidential administration. The lateness within this 
administration, and the limit on public input, will not provide opportunity 
for input from Congress and the new administration.
     
In addition, I must question the authority of the SEC in regard to this 
"Scope of Services" rule. The authority cited by the SEC in the proposal 
pertains to the filing of public companies' financial statements that have 
been audited by independent audit firms. This authority does not provide for 
making rules that govern and regulate the audit profession itself. The 
proposed rules clearly concern the "appearance of independence." The 
proposal neglects to address any issues, facts or circumstances concerning 
the additional requirement concerning independence "fact."  Since inception, 
the independence rules have been defined by an auditor's independence in 
regard to "appearance and fact."  I question whether the SEC has statutory 
authority to impose restrictions because of possible "perceptions" about 
lack of independence.
     
In as much as this proposal is a fundamental change to one of the most basic 
and observed rules of the audit profession, I urge the Commission to defer 
its adoption to afford more time for input from the CPA profession, public 
entities, and other interested parties.
     
Thank you for your consideration.
     
Sincerely,
     
Chris Brown, accountant
Leverich Rasmuson Banyard

Author:  David Butler  at Internet
Date:    09/28/2000  11:26 PM
Normal
TO: RULE-COMMENTS at 03SEC
Subject: "File No. S7-13-00"
------------------------------- Message Contents 
To Whom It May Concern,
     
For most investors, the SEC is all we have... in the long run, it is all 
that the stock market itself has.  Without faith in the markets, the 
markets will cease to function.
     
Auditor Independence can certainly be construed as a proposal that is 
equivalent to the age-old bromide "An ounce of prevention is worth a 
pound of cure". I support the SEC's efforts to bring about a separation 
of auditing and consulting services.
     
David P. Butler
21022 Los Alisos Blvd. #122
Santa Margarita, CA  92688
949/713-7745
     

  Author:   at Internet
Date:    09/28/2000  9:41 AM
Normal
TO: RULE-COMMENTS at 03SEC
Subject: File No. S7-13-00
------------------------------- Message Contents 
As an individual investor, what I see is painfully obvious regarding this 
issue.  How can a firm and/or person effectively and ethically audit a 
company that they have provided consulting services for?  We're all human 
beings, and EVERYBODY would tend to sway their decisions in any situation 
like this.  Sounds like a common sense issue to me...
     
Kyle Kepple
Individual investor