Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street NW
I am writing to express my deep concern with The Securities and Exchange Commission's rules to prohibit non-audit services by public accounting firms.
I have spent over thirty years in financial related positions. The first three years with a public accounting firm, and then twenty-seven years with two New York Stock exchange listed companies, including twelve years as Corporate Controller and eleven years as Chief Financial Officer. During this time span, our public accounting firm provided both audit and non-audit services. The non-audit services principally involved the design and implementation of order entry and manufacturing cost systems.
I have never felt that the quality of the audit process was in any way affected by non-audit services.
Having our audit firm involved in system design helped to reduce our audit fees. First, the audit staff was familiar and comfortable with the system design methodologies used by the consulting staff. This allowed the auditors to spend more time auditing the results of new systems versus the mechanics of how they were designed. Secondly, we used the additional consulting revenues as a negotiating point to keep the audit fee increases to a minimum. My counterpart in Information Systems used the ongoing audit annuity in a similar manner when negotiating consulting fees.
Forcing public accounting firms to rely solely on audit fees will initially cause all fees to rise. Chief Financial Officers will then start shopping for the firms with the lowest price structure. The firms that will survive will either be very efficient, or they will be the firms that pay the lowest salaries. Lower salaries will drive the most qualified people out of public accounting, which will only reduce the value of the audit process. Companies will change auditors more frequently, turning an audit opinion into a commodity versus a professionally derived safeguard for the investing public.
The Panel on Audit Effectiveness of the Public Oversight Board, which was convened at the request of the SEC, found no evidence that non-audit services affected the quality of audits. To my knowledge, no SEC enforcement action has ever been brought claiming an impairment of independence due to non-audit services.
Nonetheless, the SEC is proposing rules to address perceived concerns relating to the "appearance of independence". I hope that government agencies will not start promulgating new rules based on perceptions versus actual facts.
I urge the Commissioners to vote against the scope of services rule.
Michael J. Halloran
Former Chief Financial Officer
Wallace Computer Services, Inc.