Date:    09/25/2000  4:11 PM

Subject: S7-13-00
 
To whom it may concern:
     
This letter is being written to formally express my concerns regarding the 
SEC's proposed rule that would limit most non-audit services accountants 
could provide to their audit clients.  I have been in public accounting for 
over 8 years and am employed by a CPA firm that provides a variety of 
accounting services to a diverse client base.
     
Most of our clients retain our services because they know and trust us. 
They consider us a valuable resource for information on recording complex 
transactions, saving money on taxes, designing effective internal controls, 
completing regulatory filings, writing formulas in spreadsheets, installing 
accounting systems, and interviewing prospective candidates for employment. 
We feel that providing these services to our clients helps us learn more 
about the client as well as get a feel for management's intentions, both of 
which are critical to being able to perform an audit that is in compliance 
with generally accepted auditing standards.
     
One example I can provide to illustrate my point is where a CPA firm is 
engaged to perform only an audit engagement for a large construction 
company.  The typical auditor would exercise professional skepticism and 
search for an overstatement of receivables and an understatement of payables 
that may exist to have the client's financial statements appear healthy for 
the bonding company.  However, without the ability to provide additional 
services, the accountant would not have the opportunity to determine that 
management's primary motivation is to avoid paying taxes!  As a result, 
management would intentionally try to understate assets, overstate 
liabilities and underestimate the estimated percentage of completion on 
construction jobs to minimize the tax liability.  In this example, the 
auditor would not be as effective at performing the audit had he/she been 
given the opportunity to know and understand the client.
     
The rule, as proposed, would require our audit clients to retain other 
companies to perform additional services.  This would result in a 
duplication of work that would be both inefficient and ineffective.  The 
majority of our clients cannot afford to retain one firm for audit services 
and another for non-audit services - nor do they want to.  In addition, with 
the increased education requirements for CPA candidates, the supply of 
qualified people to perform professional services has been drastically 
reduced.  However, if the proposed rule were to be passed, we would have an 
increased number of companies performing services with fewer qualified 
personnel.
     
The SEC admits that there is no empirical evidence that non-audit services 
have compromised audit quality or auditor independence, nor ever caused an 
audit failure.  Further, the current Panel on Audit Effectiveness of the 
Public Oversight Board, a panel created at the SEC's own request, concluded 
that there is no evidence that non-audit services has hurt audit quality. 
In fact, the conclusion was quite the opposite!!  Non-audit services 
contributed to a more effective audit, which is consistent with our own 
experience.  Why is the SEC ignoring the Panel's conclusion?
     
My recommendation is for the SEC to stop proposing rules to solve problems 
that do not exist.  The general public does not question the need for the 
SEC, so please stop them from passing unnecessary rules to justify their 
existence.
     
Sincerely,
     
     
     
Michael C. Renza CPA