Date:    09/18/2000  10:20 AM

Subject: Reference file NO.: S7-13-00
 
I am a principal at a mid-size CPA firm in the St. Louis area that provides 
audit services to privately held / family businesses.  We do not perform 
audits of public companies.  I am having a hard time understanding why the 
SEC is moving forward with the proposed rule prohibiting CPA firms from 
performing non-audit services to audit clients without exploring the 
situation further. Is there evidence that non-audit services have 
compromised audit quality or auditor independence, or ever caused an audit 
failure?  It is my understanding that 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.
     
Is it true that CPA firms that do not audit SEC registrants could be 
impacted by these new rules? Will the Missouri State Board of Accountancy 
and other regulators view the proposed SEC rule as the new model?  If this 
is the case, I believe that further study of the situation is warranted.
     
Has the SEC ignored the findings of the current Panel on Audit Effectiveness 
of the Public Oversight Board, a panel that was formed at the request of the 
SEC? I believe that the panel concluded that, "both the profession and the 
quality of audits are fundamentally sound." The panel said it could find no 
evidence that the provision of non-audit services has hurt audit quality. On 
the contrary, it concluded that in numerous instances non-audit services 
contributed to a more effective audit.
     
It appears to me that the SEC proposal is bad news for CPAs, since it would 
restrict companies' freedom of choice when seeking outside professional 
services. The rule would force all companies directly or indirectly to 
constantly choose whether to hire a firm solely as its auditor or solely as 
a provider of other services. A company might be compelled to dismiss an 
audit firm that has done consistently outstanding work in order to obtain 
services from the auditor's non-audit colleagues.
     
Has the SEC adopted a schedule designed to avoid Congressional oversight and 
preclude meaningful public participation? Has the SEC waited until the 
eleventh hour of the Clinton Administration to push through a radical rule 
to restructure the accounting profession, without permitting informed 
oversight, or policy participation, by Congress or the new Administration? 
Why have each of the last 10 SEC annual reports to Congress not mentioned 
any concerns about the scope of services issue? Why is the SEC limiting to 
75 days the period for commenting on this far-reaching and highly complex 
proposal? Why has the SEC not allowed time for important recent reforms to 
work, including new disclosure and audit committee requirements adopted by 
the ISB, the NYSE, the NASD, the American Stock Exchange and the SEC?  Will 
this rule have a negative effect on recruiting and retention of staff?  We 
are currently finding it almost impossible to find new staff due to the 
recent rule requiring CPA's to have 150 hours of college education.
     
In my opinion, the SEC lacks authority for its sweeping scope of services 
rule. It appears that the statutory provisions cited by the SEC in the 
proposed rule pertain to public companies' filing of financial statements 
that have been audited by independent accountants and do not expressly 
authorize the SEC to make rules governing or regulating directly the 
accounting profession itself. The proposed rule is based primarily, if not 
entirely, on alleged concerns relating to the "appearance of independence", 
but not independence in fact. Does the SEC have statutory authority to 
impose restrictions because of possible perceptions about independence? Why 
do we need this government regulation?
     
These restrictions on non-audit services will likely have the perverse 
effect of undermining auditor independence by making audit firms overly or 
exclusively dependent on auditing fees, which would certainly be contrary to 
the public interest. Such restrictions will also harm the recruitment and 
retention of the most qualified personnel, causing a possible degradation in 
audit quality.
     
You can see that I have lots of unanswered question on the impact of the 
proposed rule.  In my opinion, significant additional study should be 
performed before these rules are enacted. I think most Americans would find 
this a curious public policy position for their government to take. I would 
appreciate any assistance you can provide on this matter.
     
Sincerely,
     
     
James B. Gentry, CPA
Concerned Citizen and Accountant