Via e-mail: firstname.lastname@example.org
September 21, 2000
Mr. Jonathan G. Katz, Secretary
Securities and Exchange Commission
405 Fifth Street, N.W.
Washington D.C. 20549-0609
Re: File No. S7-13-00
Dear Mr. Katz:
Enclosed are two responses prepared on behalf of the Illinois CPA Society (ICPAS) to the rules proposed by the Securities and Exchange Commission (SEC) relating to auditor's independence. As more fully described in the enclosed letters from the chairmen of ICPAS's Ethics and Audit and Assurance Services Committees, we agree totally with the SEC's attempt to modernize the independence standards regarding financial interest and family relationships. However, we have significant concerns about the proposed standards that will limit the scope of professional services provided to attest clients.
The proposed "scope of services" rule appears to be a radical reaction to a "perception" issue for which actual evidence is clearly lacking. Even the Panel on Audit Effectiveness of the Public Oversight Board, formed at the request of the SEC, concluded, "both the profession and the quality of audits are fundamentally sound" and in numerous instances "non-audit services contributed to a more effective audit".
As specifically addressed in the response from the Audit and Assurance Services Committee, there is a genuine need for a conceptual framework for independence rules. Once a comprehensive conceptual framework is developed, specific rules that fit within that framework, and an underlying rationale for each rule could follow. We encourage the SEC to support the Independence Standards Board to develop this conceptual framework.
Adopting the SEC's proposed "scope of services" rule would adversely affect the relationship between auditors and their clients, as it would ultimately impair the quality of audit service provided. In addition, the rule would force clients to incur greater costs by obtaining audit and non-audit services from different providers, rather than leveraging the knowledge a client's retained auditor has already obtained. The proposed rule would also have a severe detrimental effect on the ability to attract into the profession and retain qualified auditors, as they would not have the opportunity to experience both audit and non-audit services. Future career paths would be extremely limited.
I encourage you to listen to the numerous areas of concern and disagreement that are expressed in the enclosed response letters. These concerns are not just from firms that audit publicly-held companies. Rather they are the voice of sole practitioners, large and small accounting firms, educators and members in industry. Even with the variety of backgrounds of our committee members, all believe that obtaining non-audit services from an audit firm should be a free-market decision. Management, boards of directors and audit committees can carefully consider independence concerns as well as concerns as to the best-qualified service provider. Accordingly, we as a profession should let the market decide.
If you have any questions about any of these comments, I as well as our committee members would be happy to discuss them.
President & CEO