Date:    09/21/2000  9:30 PM

Subject: S7-13-00

To Jonathan G. Katz, Secretary
Securities and Exchange Commission
     
I am writing to discuss the proposed independence rules.   
     
I have been a CPA for twenty years, and am actively involved in audit 
practice. My firm is a member of the AICPA's  SEC Practice Section. I spent 
eight years on the Calfiornia Society of CPAs Professional Conduct 
Committee, and four years on the Peer Review Committee, and have performed 
over 200 peer reviews of small firms. I also teach accounting at the MBA 
level in a private university. In the course of this experience, I have had 
ample opportunity to contemplate independence issues.
     
I am of the opinion that the SEC is right to insist on restricting the 
scope of services that CPA firms provide to SEC-registered audit clients. 
The AICPA, and many of the national firms argue that there is little 
empirical evidence that non-audit services have compromised auditor 
independence.   This argument, in my opinion, misses the point, which is 
the growing lack of  public confidence in the integrity of the audit 
process.  The fact is that the public perceives an impairment of 
independence when it learns that a firm has used auditing services as a 
loss leader to gain access to high-priced consulting services.  Were this 
not so, this tempest would never have arisen.
     
It may well be true that accounting firms can provide both consulting and 
auditing services to the same client and still retain an independent state 
of mind. But  the public, with however small justification, perceives 
otherwise.  This should tell us that the accounting profession has a 
problem that it is not confronting.  The erosion of public confidence in 
the audit process cannot be dismissed by the simple assertion from some 
representatives of our profession that the public perception is incorrect. 
     
     
Economic arguments to the effect that implementation of the proposed rules 
would constrict the pool of available audit or consulting firms, or drive 
up the price of either service, are in my view specious.  The amount of 
auditing and consulting work will remain the same. It will simply be 
redistributed among the providers in the marketplace.  The prices of these 
services will continue to be negotiated in that marketplace, as they are 
now.
     
The SEC's independence proposal is not the best of all possible solutions. 
I am concerned, along with many of my colleagues, that this proposal would 
be interpreted so as to prohibit even mundane services such as bookkeeping 
and "write-up," or tax preparation, or that it would be subjectively 
applied by regulators.  Nonetheless, the crisis in public confidence must 
be addressed.  The proposed rules, however imperfect, will do that. 
Technical corrections can wait.
     
Perry M. Henderson, CPA
1200 Nevada Street #203
Redlands, CA 92374