September 4, 2000
Jonathan G. Katz, Secretary File No. S7-13-00
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609
Dear Mr. Katz,
I am writing about the currently proposed rule, which relates to accounting firms performing audits for SEC registrants. I am worried that non-public clients might be prohibited from providing any audit clients with most non-audit services. I am part owner of an electrical contracting company. We use the services of a public accounting firm and part of those services include consulting. Part of the reason that they can provide excellent consulting services is that they understand our business. If we were forced to educate two or more different firms about our business, the cost of our consulting services would significantly increase. This would increase our costs without improving our outcome. Indeed, the chance for confusion between the two firms and us would increase.
I feel that the SEC has based its decision to move forward with this rule prohibiting non-audit services without facts or evidence. The evidence that non-audit services have compromised audit quality or auditor independence or that a failure in an audit engagement has occurred does not exist. The studies and reports cited by the SEC concluded that the scope of services did not impair audit effectiveness. There is no empirical evidence that a ban is necessary or appropriate. The SEC's proposed rule is a solution in search of a problem.
The Panel on Audit Effectiveness of the Public Oversight Board, a panel that was formed at the request of the SEC 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.
The most dangerous outcome, in my opinion, for the accounting profession is the likely prospect that the proposed rule would set a 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, as well as federal and other regulators.
For my company, the SEC proposal is bad news. We would be restricted in our freedom of choice when seeking outside professional services. We couldn't hire an audit firm to handle our consulting services. We might even have to dismiss an audit firm that has done consistently outstanding work in order to obtain services from the auditor's non-audit colleagues.
The ban on a public accounting firm acting as an advocate for us or providing expert services to our company could potentially prohibit our CPA from representing us before the IRS.
In conclusion, the SEC's proposal to restrict the services offered by accounting firms represents an unwarranted restructuring of a profession. A decision by a government agency to tell some business organizations what services they may offer and to tell other businesses from which they can buy services is an extraordinary economic intervention. I urge you to abandon this rule.
Weslee Anne Klein, CPA
1677 E. Bunker Hill Road
Salt Lake City UT 84117