Date: 08/08/2000 10:28 AM Subject: Reference File No. S7-13-00 Johnathan G. Katz, Secretary Securities and Exchange Commission Washington, D.C. Senator Tom Daschle (VIA US MAIL and E File Form) U.S. Senate Washington, D.C. Representative John Thune U.S. House of Representatives Washington, D.C. Representative Tim Johnson U.S. House of Representatives Washington, D.C. Dear Gentlemen: I am writing to articulate my feelings about the proposed rule limiting the scope of CPA services which is included in the rules regarding the modernization of family/financial interest standards. This is the proposed Rule S7-13-00. I believe that these rules will have a devastating effect on firms of our size. We are a local firm in Western South Dakota with 30 employees. We do not have the benefits of a large firm or affiliation which would help mitigate the effect of a limitation of the scope of services. With our geographic location being isolated, we attempt to provide all of the services that we logically and feasibly can for our clients. In addition, with a consolidator having a branch in our town, we need to provide services to our clients that will compete with the national trends in services that the consolidators and others provide. We recently began providing financial services to our clients, i.e.: asset management, life insurance, etc. While we observe the AICPA and state mandated rules on independence, the rule that will prevent the provision of non audit services to audit clients will harm our client relationships and our ability to obtain and retain clients. While we do not have any SEC clients, we are concerned that the rule making process at the SEC will precipitate similar and parallel rules that will govern nonce firms. If we are placed in a position to have to choose to either provide audit services or non audit services, we will have a dissonance within our client base and this likely will result in loss of clients and loss of jobs. It is important that we provide tax preparation and the related advocacy in front of the IRS for our audit clients. This rule could possibly prevent the advocacy role. This would also exacerbate our current extreme difficulty in recruiting and retaining accounting professionals. How many strictly audit or strictly non audit people will be attracted to a small "forced to be specialized" firm in small town South Dakota? We already are fighting the trend for talented young people to move from accounting careers to the broader fields of information technology without squeezing the already narrow accounting field into smaller segments. Let us discuss the specific impact of the rules. We already provide bookkeeping services to our audit and non audit clients. With the remoteness of this area, clients accounting systems are not as sophisticated as they could be and they really demand fundamental accounting and bookkeeping advise. This rule would eliminate our ability to service this demand for our audit clients. Currently our AICPA guidelines allow certain internal audit services and this rule would prohibit this, again to the detriment of our clients that are smaller and lack the resources and staff to provide for them internally. Closely tied to our audit function is the provision of advise to management such as planning in areas like buy-sell, mergers and acquisitions, succession planning (most of clients in rural areas are closely-held family owned businesses), marketing, etc. This rule would prohibit this and we would lose our value to our audit clients in the value-added management consulting services area. The rule would prohibit investment advisor services which we plan on providing to affiliates or owners of our audit clients. We will comply with AICPA and state rules on independence but the SEC rule would impact those rules and not allow us to obtain additional profits from these services. These profits are important for our small local firm to be able to compete in our marketplace for accounting personnel and with the consolidators that provide these services in one form or another. The SEC rule regarding affiliates would really eliminate our services in this area. One of the reasons that we are concerned is the SEC reservation of the right to prohibit other services under it's "catch-all" and "appearance" standards. Also, their rules barring contingent fees would possibly eliminate our ability to "value-bill" our clients. That is to bill, for example, for our services at levels above our time billings when we cut our time from the prior year's audit with increased efficiencies in our audit process. We would lose the incentive to be more efficient and to accrue the reward for this effort. Thus, via this rule we could become overly dependent on audit fees and actually decrease our independence. This would put the SEC in the position of dictating the level of freedom of choice for the consumer. This rule would push us to consider joining the consolidating or merger/acquisiton movement in the accounting industry. H&R Block owns the accounting firm formerly known as McGladrey Pulled in Rapid City, as well as Pierre and Sioux Falls.. This is something small firms work hard to resist and would result in lesser choice for the consumer. Thus, I ask that you reconsider this rule, consider bifurcating the two major portions of the rule, and to study the issues that the SEC is concerned about further and longer than the time allotted to comment. There is a current swell to question the quality of the audits of public companies and their independence due to the employees and partners of the Big CPA firms investing in the public companies their firms audit. Maybe this is a good thing to investigate, however as is usual in government and bureaucracies, the broad stroke is not the way to correct isolated or specific problems. The cost to the consumer and the profession could possibly have a major negative impact greater than the gain sought for. Allow the states to handle these problems, if any, for the non-public part of the profession. If I can answer any questions, please contact me. I would appreciate hearing from the Senators and Representative about their opinions and planned action. Thank you for your attention and I remain Sincerely, Casey Peterson & Associates, Ltd. Casey C. Peterson, CPA President