SEC Proposed Rule:
Revision of the Commission's Auditor Independence Requirements
[Release Nos. 33-7870; 34-42994; 35-27193; IC-24549; IA-1884; File No. S7-13-00]
The following information was submitted by 22 individuals.
Subject: Auditor Independence
Comments: This letter is in response to the proposed regulation being initiated by the United States Securities and Exchange Commission (SEC) regarding auditor independence and the performance of non-audit services for audit clients (reference file No. S7-13-00). This proposed regulation would have a dramatic and adverse effect on accounting firms, even those that have no SEC registrants as clients, the accounting profession and, ultimately and most importantly, our clients.
I have reviewed the highlights of the SEC's proposed regulation, and share many of the concerns of the American Institute of Certified Public Accountants with the proposed and potential prohibitions, including those related to the prospect of a precedent for other regulators. I have also discussed this proposal with key executives of certain clients for whom we perform audit and non-audit services and they are deeply concerned about the potential limitation of choices and other negative consequences.
My fundamental concern with the proposed rule centers around the apparent assumption that non-audit services compromise audit quality or auditor independence. It is my understanding that there is no empirical evidence to support that assumption. Rather, we find that the performance of certain non-audit services actually enhances audit quality by allowing us to obtain an even better understanding of our clients' business and operations.
The proposal would restrict public companies' choices when seeking outside professional assistance. Companies would be forced to choose whether to hire a firm solely as its auditor or as a provider of other services. A government agency should not be in a position of telling private businesses who the businesses services providers can or cannot be. As a further consequence, the restrictions would have the effect of making auditing firms overly or exclusively dependent on audit fees which would be contrary to the public interest.
The effect on the recruitment of experienced, talented professionals and entry level graduates, and on their retention, will be negative. The best talent will not want to be limited in terms of their market, future experience and other opportunities.
I am also concerned that this proposal pre-empts the work of the Independence Standards Board which should be given more time to complete its work in developing a new auditor independence regulatory framework.
In conclusion, this broad scope of services rule should not go forward. The negative impact of many of its provisions and prohibitions would be felt, not only by the accounting profession, but across the entire spectrum of business and industry in the United States.
Very truly yours,