August 21, 2000

Scott P. Kalmanek
Certified Public Accountant
3639 Ridgewood Drive
Hermitage, PA 16148-3118

Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington D.C., 20549-0609

Reference File No.: 57-13-00

Dear Mr. Katz:

I am writing this letter to express my objection to the Securities and Exchange Commission's proposed rule that would limit the breadth of services accounting firms could offer to one: audit or non-audit services.

I am a certified public accountant in the state of Pennsylvania. I was with the regional public accounting firm of Hill, Barth & King, Inc., Sharon, Pennsylvania, for 12 years and performed audit and non-audit services for both SEC and non-SEC clients. Currently, I have completed 6 years as the CFO for the Joy Cone Co., Hermitage, Pennsylvania.

As my carreer depicts, I have experience being on both sides of the fence, i.e., auditor/consultant and client. My points are as follows:

1) The SEC has based its decision to move forward with this rule prohibiting non-audit services without facts or evidence. Even the SEC admits that there is no empirical evidence that non-audit services have comprised audit quality or auditor independence, nor ever caused an audit failure. 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. The SEC's proposed rule is a solution in search of a problem.

2) 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.

3) If the rule is adopted, there will be a negative effect on recruiting and retention of the best talent. The best audit professionals will not want to be at a firm where 25% - 40% of the market is "off-limits," and the same is true for the best non-audit professionals. Similarly, the best and brightest students will not be drawn to firms with a limit on upward opportunities. The "audit-only" firms endorsed by the proposal will have difficulty attracting the necessary talent both from accounting programs and from information technology programs, because the best talent will be drawn toward industries with broader career opportunities.

4) Broad 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.

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. We think most Americans would find this a curious public policy position for their government to take.


Scott P. Kalmanek
Certified Public Accountant


Arthur Levitt, Chairman
Paul R. Casey, Commissioner
Isaac C. Hunt, Jr., Commissioner
Laura S. Unger, Commissioner