Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609
Sent by E-mail: firstname.lastname@example.org
Reference file No.: S7-13-00
I am writing you in my capacity as a partner in charge of audit and accounting services in the accounting firm of Oatley & Hansen, P.C. Although I am also chairman of the Colorado Securities Board, the comments expressed below are mine alone and should not be interpreted to be views of the Colorado Securities Board its other members, or the Colorado Securities Commissioner.
On June 27, 2000, the United States Securities and Exchange Commission (the "SEC" or "Commission") approved the issuance of a major new rule proposal that would, in my opinion, force a restructuring of the accounting profession by radically altering independence requirements for accounting firms that audit SEC registrants. My firm is small; nevertheless, we do have several public clients, which would probably render our firm incapable of providing services to them given the impact of the proposal.
I believe the SEC has based its decision to move forward with this rule prohibiting non-audit services without facts or evidence. Of great concern to me, is that the proposal was issued with a comment period of only 75 days. Many of my colleagues may not be able to inform themselves and respond in a timely basis given that unrealistic timeframe.
The SEC ignored the conclusion of the current Panel on Audit Effectiveness of the Public Oversight Board, a panel that was formed at the request of the SEC. 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.
I am particularly concerned that the SEC proposal would affect our tax practice, which includes routine planning and consulting. I could not complete an audit without the expertise of my tax partners. The proposal would effectively create conditions that may eliminate that expertise in-house. The SEC claims its proposed rule "would not affect tax-related services" to audit clients. However, it would ban acting as an advocate for an audit client, or providing expert services in administrative proceedings, thus (except in preparing returns) potentially prohibiting CPAs from representing audit clients before the IRS. That is simply unacceptable and would constitute a hardship to our firm.
Moreover, I have historically provided audit clients with routine consultation regarding business decisions that are not only appropriate but have no bearing on my independence. I find the proposal insulting to infer that my professional independence has been compromised. Had I known of this proposal 30 years ago when considering entering the profession, I would have found something else to do. There is a reason that I didn't go to work for the IRS, and now, late in my career, the SEC is trying to place me in the same position with respect to financial reporting as a CPA.
The proposed rule would set a dangerous precedent for other regulators. Even accounting firms that do not audit SEC registrants could be impacted by these new rules. The proposed SEC rule would be viewed as the new model by state boards of accountancy.
In a rush to regulate, the SEC has:
The SEC lacks authority for its sweeping scope of services rule. 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. The SEC does not have statutory authority to impose restrictions because of possible perceptions about independence.
In conclusion, the SEC's proposal to restrict the services offered by accounting firms represents a fundamental restructuring of a profession that has successfully given investors the reliable, independent data they need for the past century. A decision by a government agency to tell some business organizations what services they may offer and to tell other businesses from whom they can buy services is an extraordinary economic intervention without any empirical or other basis. I think most Americans would find this a curious public policy position for their government to take.
This is simply a bad proposal and should be reconsidered by the SEC.
Oately & Hansen
/s/Gaylen R. Hansen