NEW YORK, NY 10017

August 24, 2000
Security and Exchange Commission
Washington, DC

Proposal on auditor independence


I have been an accountant practicing before the Securities and Exchange Commission for forty years, including being a partner of my present 20 person firm and formerly a partner of a large international firm. Based on all that I have seen, I believe that "Independence" is a concept that has little applicability to the twenty-first century. The courts, the AICPA, and the SEC have created an overpowering structure to insure that the auditing firms perform as impartial an audit as they can. The proposed rules add a large level of complexity, with detailed and questionable rules and little or no evidence that such rules accomplish an improvement in the audit process.

In general, the concepts, from the proposed Rule 210.2-01(b), are the following:

The problem of writing independence rules is exacerbated by the need to write a "one size fits all" approach. In my small firm I could ban any investment in a client, direct or indirect. The major independence issue would be the size of the client in proportion to our total size. Rules that are important for a large international firm would not apply to me. Conversely, what is appropriate for my firm would not work for a large firm.

I have dealt with the legal profession throughout my career, with lawyers as counsel to public companies without the above rules. In spite of their lack of "independence", I have consistently found such lawyers' expression of their professional opinion to be just as "independent" as the auditors, in spite of the non-existence of the above rules governing their profession.

My staff now has to learn GAAP, GAS, the Internal Revenue Code and some state and local taxes in the two or three years they are with me. To require learning independence rules, which will have no relevance once they go into industry and do not directly affect the audit process, appears excessive and counter productive.

I do believe that some type of guidelines relating to independence would be appropriate, but should vary materially from firm to firm. What would be the appropriate rule for my firm with 20 professionals and 10 public companies really bears no relationship to that required by one of the "Big Five." Accordingly, to let the market determine the appropriate type of independence for each firm, I propose the following:

With this information available to the marketplace and the audit committee, auditing firms would have to write rules that made sense for them, could be enforced and evaluated. The requirement that the audit committee evaluate the independence of the auditing firm would allow the committees to use their business judgement, working with the auditing firms, to make rational, appropriate decisions.

Thank you for this opportunity to express my thoughts on this important topic.

Very truly yours,

Arthur J. Radin