Author: "Kirby Kennedy" Date: 09/01/2000 10:28 AM Subject: File # S7-13-00 Dear sirs: I oppose a number of the points in the proposed rule listed above. With regard to the 10 enumerated categories of non-audit services that are prohibited to a pulic company's auditors - I offer my following comments. 1) Bookeeping: I agree that this impairs independence. 2) Information systems design: I do not agree that this function carries a substantial enough likelihood of the risk of impairment to auditor independence to justify an outright ban on this function. I believe that this is probably an unconstitutional taking of auditors' right to work without there being any reasonably demonstrable governmental interest that can be shown to be furthered by this ban. The causal connection between the provision of systems design and impairing independence is just not evident without the SEC being able to provide significant probative empiracle data to support this position. This is a classic area that would depend on professional judgement not an administrative fiat. As is often the case with professional matters, no hard and fast rule should apply to situations that must be analyzed on a case by case basis. 3) Valuation services: I do not agree with a blanket ban on these services being placed on outside auditors. Again this is an area where professional judgement must apply - not an administrative fiat. I wish to further point out that this is an area of overreaching by the SEC just as in 2) above. In areas that are best left to professional judgement, there are still avenues of redress for improper judgements, those avenues are called courts. I suggest that this appears to be an attempt to legislate with a broom when a paintbrush is required. Admittedly, valuation services related to certain functions might potentially impair independence. I do not believe that valuation related to tax practice would necessarily impair independence of the outside auditor. 4) Actuarial services: Having worked in the financial department of a large insurance company for several years, I agree. 5) Internal audit outsourcing: Again an outright ban is not justified. I have worked in companies that used their internal audit departments as a true part of the internal control structure. In these companies, outsourcing would be a delegation of management responsibilities and clearly a violation of auditor independence principles. However, another employer used the internal audit function almost exclusively to reduce the outside audit firm's workload thoughout the year and to prepare drafts of the income tax returns. These functions could reasonably be outsourced. The outright ban is too general. 6) Management functions: This is obviously correct to ban. 7) Human resources: I do not believe that an outright ban is justified. There does not appear to be a sufficient connection between most human resource functions and financial statement assertations to ban outside auditor involvement. The SEC's justification for this ban is so convoluted as to make Kennedy murder conspiracy theories appear to be scientific treatises. 8) Broker dealer, etc.: I agree that there is too great a connection between financial rewards in these functions and the work of the outside auditor. 9) Legal services: Same song - new verse. This is overbroad. For example, performinmg a portion of the work on drafting the percentage rent terms in a standard lease would not appear to impair indepence unless you apply the same logical jumps required to play "six steps to Kevin Bacon". A traditional area of auditor involvement has been income tax preparation and representation. In the vast majority of cases, this has not lead to independence related audit breakdowns. Some legal services should not be undertaken by outside auditors such as litigation or litigation support services. This is another example of a case by case anlysis being required which calls for professional judgement. Bad judgements should be redressed by courts, not an overly broad administrative rule with costs that are justified by uncertain results. 10) Expert services: I disagree with this ban for the same reasons as discussed in the section 9) discussion. I believe that the provision of many expert services are even less questionable than providing limited legal services. The disclosure requirements for nonattest services provides some information that might be useful to a limited number of investors, but I doubt that many will ever use it since we appear to moving to a society of day traders. The affiliate language is overbroad and unduly burdensome. The trend towards globalization will lead U.S. based audit firms into competition with international groups that have combined with other professions. Adopting this type of extensive affiliate based restriction will lead U.S. auditors out of step with the rest of the world. Do we realy want to create the audit equivalent of the current mess involving metric versus english measurements? My gut reaction to these proposals is that it is a hastily drafted, overreaching attempt by SEC staff associates to pass legislation that has not been carefully considered with meaningful input from those who actually work out in the real world. A brief synopsis of my backgroung is: I am a CPA with 20 years experience, the most recnt 12 years have been worked in industry. I hold a graduate management degree and am completing work on a Juris Doctor. Hopefully, the content of this communication along with this backgroung information will lead you to at least read until the end of this missive. Please reconsider these proposals and remember that you govern at the acquisence of those governed not through any devine right. Thak you very much for any consideration that you give to my comments.