September 21, 2000
Mr. Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609
Dear Secretary Katz:
I am pleased to have this opportunity to comment on the proposed revision to Rule 2-01 of Regulation S-X, regarding auditor independence.. As a CPA in public practice, I am greatly concerned with the effect the rule, if adopted, will have on my practice, my clients and the public.
The proposed revision to the rule has over 400 questions in its request for comment from practitioners. I own a four person CPA firm and could not begin to address the issues contained therein, within the time frame given. I would however, like to comment in general regarding the proposed revisions and their effect on the marketplace.
Although parts of the proposed rule alleviate some overly burdensome restrictions, the curtailing of the ability of accounting firms to provide services other than audit and tax services to SEC audit clients is unwarranted. Indeed the Panel on Audit Effectiveness of the Public Oversight Board reached the conclusion that there was no evidence indicating the provision of services other than audit and tax services affected audit effectiveness. Although I understand the Commission does not need to produce evidence indicating that nontax nonaudit services leads to a lack of audit effectiveness, it seems logical that the prohibition of services having no effect on audit effectiveness (as concluded by the O'Malley Panel) would only serve to cause an equal and opposite reaction The Commission's concerns regarding independence impairment I believe are premature.
I am also concerned with the trickle-down effect of the proposed rules that will surely develop. Although the firm I own performs no public audits, we do perform audits of not for profits and employee benefit plans. Both of these sectors would be adversely impacted when the precedent set by the SEC is eventually adopted by other agencies. Small businesses sponsoring employee benefit plans that are required to be audited will inevitably end up spending more money on consultants who are not as intimately involved in the information processes and systems as an auditor needs to be to form an opinion. The result, of course, will more than likely be the reduction of benefits to employees. Similarly, the same reaction will occur in the not for profit sector; less money available for eleemosynary purposes.
I have read all the testimony from the hearings. It is so clear to me that the divergence of opinions on this issue mandate that more time be spent by the SEC in determining the effects. The proposed rule provides uncertainty rather than certainty as to what the effects are in the marketplace. I hope the Commission is willing to revisit the issue and not be in a rush to regulate when the effects are unknown.
I appreciate your consideration of this matter and sincerely hope discussions will continue until the issues are adequately and thoroughly addressed.
Mary Lou Pier, CPA