Date:    09/06/2000  3:49 PM

Subject: File No. S7-13-00

COMMENT OF DENZIL Y. CAUSEY, JR., DBA, JD, CPA (Inactive) 
(Co-Author of Duties and Liabilities of Public Accountants) 
Subject:  File No. S7-13-00
SEC Proposed Independence Rules for Accountants
     
FOCUS OF THE PROPOSED RULES
     The proper focus should be on access to nonpublic information and not on 
who can influence the audit report.  Because of foot-dragging by the AICPA, 
the audit report has no particularized information about the adequacy of 
internal controls for past or future operations.  Every firm gets the same 
audit report copied out of a book published by the AICPA.  Yes, it is true 
that this represents wasted billions of dollars on meaningless audit reports. 
 GAO research concerning the savings and loan crises revealed that when the 
company slips into bankruptcy, more often than not the auditors fail to 
detect it.  The AICPA has the arrogance to claim credit where no credit is 
due.  Because most American companies have honest hard working management, 
most financial reports prepared by American firms need no audit.  There are a 
lot of dedicated honest people in American industry.  The AICPA has the 
audacity to claim credit for their work.  Unfortunately the auditors are all 
too often interested, not in auditing the client's books, but obtaining 
access to nonpublic information.  The SEC's own consultants have shown that 
up to 86% of partners in one Big Five firm have independence violations. What 
the SEC has never asked is what access these persons had to nonpublic 
information which is unavailable to you and to me, and how much in profits 
they made as a result?
     It is hornbook law that knowledge possessed by one partner is attributed 
to all partners.  How did such a rule come about?  The common law is the 
development of the wisdom of centuries and one can figure that knowledge of 
one partner is knowledge of all.  For purposes of SEC independence standards 
this time-tested standard should be respected.  We have seen that Big Five 
accountants want to go into business with their clients and want to own dot 
com companies.  There is evidence that purchase of shares of an audit firm's 
client by professionals performing both audit-related and consulting related 
services is not an unusual practice, yet the SEC sits on its hands.
     The SEC has taken damaging affirmative actions such as establishing an 
Independence Board (ISB) that is controlled by the Big Five and the AICPA. 
The ISB should be abolished as its work has resulted in the current proposal 
for watering down our existing independence rules.
     
FLAWS IN THE PROPOSED RULES
     Flaws in the SEC independence rule proposal include:
(1)  The focus is on who can influence the audit instead of on who has the 
power to access nonpublic information about the client.
(2)  Instead of requiring all accounting firms performing SEC audits to spin 
off all consulting and tax work, the SEC has offered a proposal of 
identifying consulting services that are appropriate for audit clients and 
consulting services that are inappropriate.  This is like applying a band aid 
to a patient whose survival depends upon three-way bypass surgery.
(3)  The SEC proposed definition of "covered person" would make it possible 
for any partner, principal, or shareholder to own stock in the audit client 
if their office does not participate in a significant portion of the audit. 
No reference is made to their access to nonpublic information.  Numerous 
future violations of this unrealistic classification will occur and will be 
excused because of problems of application and the changing nature of audit 
work that may require a shift of work between offices.  There is no 
prohibition on an audit manager or professional staff member owning stock 
even if they have nonpublic information by  virtue of being in an office 
participating in a significant portion of the audit.
(4) Covered person includes "partner, principal, shareholder, or professional 
employee" providing service to the audit client.  However, there is no 
prohibition against a secretary purchasing shares of stock when she acquires 
nonpublic information while typing a draft for an audit report.
(5)  While covered person includes "audit engagement team" such teams are 
constantly changing.  An auditor often moves from one team to another for a 
day or two at a time for the taking of inventories and other such special 
reasons, and may acquire material nonpublic information when doing so.
(6)  In order to make it possible for the Big Five to avoid all risk of 
future independence problems, the rules provide that installation of a 
"quality control" system that provides reasonable assurance that the firm 
does not lack independence will avoid sanctions despite violations.  Of 
course, PWC had in place such a control system when an SEC study discovered 
that over 86% of PWC partners had independence violations.  This kind of 
regulation is a farce.  The only way to enforce standards is to punish 
violators by rules excluding both the violator and the firm from specified 
future engagements each time a violation occurs, and to enforce criminal 
sanctions on insider trading.
     Every audit filed with the SEC should be required to include a schedule 
of investments in client securities during the prior 12 months for all 
partners in the accounting firm regardless of whether the partner performed 
services for the client.  This schedule should also be required for any 
employee performing any services related to the client.  These employees must 
include staff members typing a draft report or a member of the consulting 
staff advising on a pension plan.