September 25, 2000

Mr. Arthur Levitt, CPA
Securities and Exchange Commission Auditor Independence Requirements
450 Fifth Street, NW
Washington, D.C. 20549-0609

Re: Proposed Rule S7-03-00

Dear Mr. Levitt:

I assume the commission will receive thousands of letters for or against the above referenced rule. I am sure many of the letters will advance a lot of arguments why the commission should or should not adopt the proposed rule and why it is contrary to the public interest to prescribe rules governing independence or "appearance of independence" of CPA firms performing audits of publicly held companies.

I could very easily write you a voluminous position paper outlining all the reasons behind my arguments, however I decided to communicate my conclusion to you in as simple form as possible and avoid repeating all what must have been communicated to you already. I have never written to the commission before and I am not a person who is known to be easily influenced. Throughout my career I was interested only in issues that have major impact on the profession. For example, I was one of the firsts to call for abolishing the necessity to report the earnings per share for privately held enterprises. (See Journal of Accounting page 91-May 1981). At the time I was opposed to the notion of Big GAAP and Small GAAP because I felt that it would result in confusing the public, create two classes of professionals and entities and lead to a divided business world.

I advocated the use of Other Comprehensive Basics of Accounting "OCBOA" where it was applicable and only if it is helpful to the entrepreneur (see Journal of Accounting Feb. 1991). In addition, as I indicated before, I was opposed to the creation of a Big GAAP and Small GAAP, and for the same reasons I am currently opposing the creation of Big and Small Independence rules.

During my years in academia I always presented the CPA profession to my students as one that enables the graduates to be creative, gain a great deal of experience not only in accounting but also in consulting and process improvements. Is working for an exclusive audit firm accomplishing the same thing? I will leave that to your judgement.

I believe the proposed rule will create a virtual monopoly of publicly held audits by a handful of firms. It will discourage other firms from competing in a field that is turning more to be a "commodity", representing a very narrow set of skills and expertise unattractive to our young graduates.

An argument could very easily be made that it is difficult to legislate or impose Ethical rules of behavior through regulation. The above referenced proposed rule attempts to do that. Dealing with actual or perceived independence through regulation will create different measuring criteria and will have an effect on small firm services to non-publicly held enterprises.

It was difficult during my tenure on the Auditing Standard Board to promote any behavioral rules that distinguished between ethical practices for conducting one type of audit vs. another. In reality the only thing that distinguishes between the CPA profession and the other professions is the notion of independence.

Other professions can claim equally their own attitudes of due care, competence and objectivity. Creating a dual measuring criteria of independence (One for publicly held and one for non-SEC audits) will destroy the foundation of trust in our profession and system and confuse the public.

As a member of our State Board of Public Accounting, how can I disregard the new SEC rule once it takes effect in dealing with reporting under our own state Blue Sky laws? How would I evaluate the independence of auditors that reported on privately held companies once it fell under the State Blue Sky laws? What would the SEC position be if the same company decided to subsequently issue public stock as an IPO in accordance with the SEC rules? Even though I am a member of our State Board I am not speaking on behalf of the Board, I am only expressing my own opinion. The Securities and Exchange Commission was very helpful in the past in simplifying the registration process of several publicly held enterprises. However the proposed rule will definitely reverse some of the gains accomplished to date in this regard.

Throughout it's history the SEC dealt with the profession in a very wise, constructive and supportive manner. I urge you to continue that attitude and to listen carefully to the voices of the business leaders and the CPA profession. Your guidance to the ISB in solving the current problems and your efforts to strengthen authority and the responsibilities of Audit Committees would go a long way in solving the reporting problems that we are facing in our fast moving new economy.

Very Truly Yours,

Jacob J. Cohen, CPA

CC: Alfred Whiteman
MD State Board of Public Accounting