September 6, 2000
Mr. Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609
RE: File No.: S7-13-00
Dear Mr. Katz:
I am writing to express my concerns with regards to the rule proposed by the SEC that will cause restructuring of the accounting profession and will change the independence requirements for accounting firms that audit SEC registrants.
I have not seen in any 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.
It is important to point out that the SEC formed the Public Oversight Board which reported on Audit Effectiveness and found that both the profession and the quality of audits are fundamentally sound. In addition, the panel stated there was no evidence that the provision of non-audit services would harm the audit quality.
The SEC proposal will restrain CPA's working in industry by not allowing public companies to have freedom of choice when seeking outside professional services by forcing public companies to decide if they should hire a firm for its auditor or provider of other services.
The rule would also affect tax-related services to audit clients since a CPA would not allowed to act as an advocate or provide expert services in administrative proceedings for an audit client before the IRS.
The SEC has needlessly tied its popular and long-overdue modernization of family disqualification rules-depression-era rules that discriminate against working women and two-career families-to its far more controversial scope of services initiative. Modernization of the financial-interest standards can and should occur on an expedited basis, independent of the scope of services initiative. The scope of services initiative requires more time for fact finding and analysis than provided by the SEC's time frame.
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.
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.
George N. Payne
Executive Vice President