Testimony of Gordon A. Viere,
Chairman, Practice Group B Advisory Committee,
American Institute of Certified Accountants,
At the Public Hearing
On Auditor Independence
Before the Securities and Exchange Commission

Wednesday, September 13, 2000
New York City

Mr. Chairman, and Commissioners Hunt, Carey and Unger, thank you for the opportunity to testify today.

I have the privilege of chairing the AICPA's Practice Group B Advisory Committee. Practice Group B includes firms with 50 AICPA members or more, excluding the largest five firms. Our current membership includes 67 firms with more than 9,000 AICPA members. Collectively, Group B audits over 2,200 SEC registrants.

The AICPA Practice Group B Advisory Committee focuses on issues facing these firms and their practices. No current issue is of more significance to this Practice Group than the SEC's rule proposal.

I am also the managing partner of the Minnesota based firm of Larson, Allen, Weishar & Co., LLP. With over 675 employees in offices in 5 states, we do a full spectrum of audit, tax and financial consulting work in both an industry and service line focused manner. We offer our client base integrated services, bringing different service components to bear on the needs of our middle market, industry specific, largely private company clientele.

I want to speak to you today from the perspective of mid-sized firms, without a substantial SEC attest practice. These firms have a vital interest in the rule proposal due to the potential ripple effect it will have on other regulators.

This ripple effect is quite simple - as the foremost regulator on accounting matters, the SEC sets the standard for state boards of accountancy, other federal regulators like the Department of Labor with respect to ERISA, and international regulators. If the SEC changes the rules on auditor independence, those changes will ripple out and impact all accountants in the U.S. So what you decide will effect not just those who audit SEC registrants, but all CPAs.

What are my concerns, assuming you adopt the rule proposal in its present form?

First, I am very troubled by the impact of the restrictions on non-audit services. These value added services have been the fastest growing component of the Group B firms for the last decade. If we are forced by the rule to cut back our non-audit offerings, the quality of our audit work will suffer. No client, no CPA, no investor - no one - will win by "dumbing down" the audit, that is, by lowering the overall pool of talent, and knowledge available to work on an audit.

I am concerned also about the impact of the rule on the ability of Group B firms to compete for bright young people with the skills demanded by the New Economy. This is a challenge now. It will only become more difficult if the rule is adopted. With only audit and assurance work to offer, the overall level of quality of our new recruits, I am convinced, will be compromised.

Another consequence, surely unintended, will be to drive up the price of an audit by constraining competition and constricting our revenue base. Ironically, these likely consequences will increase our dependence on our audit clients. Higher fees and greater dependence, I assume, are not what you intend.

There will be real harm to our clients if the rule is adopted. Many small businesses, private and often family-owned, rely upon their accountant for a variety of advice, starting with the audit. While these clients look to us first for the audit, they will be surprised and hurt by our inability to perform other non-audit services for them - services they have asked for in the past which we have traditionally provided. There will be large search costs for them to identify alternative problems, large transaction costs, for another provider to come up to speed on their business, and probably higher absolute costs on the services now acquired piecemeal, rather than single sourced. Accordingly, this rule proposal would harm America's small businesses, another result, I assume, that was not intended.

Finally, the impact of the proposed rule on the alliances among many of the Group B firms will be very severe. The whole purpose of alliances is to enable smaller firms a means to compete with the larger firms in terms of service and geographic scope. But this objective will be thwarted, and the alliance concept gutted, by your rule proposal's definition of "affiliate of an accounting firm," which would result in all activity of any member of the alliance being attributed to all members.

I urge you to consider your rule proposal carefully, to extend the comment period on the rule proposal, and to inform yourselves about the real impact of your rule proposal on accountants and their clients all across this country - accountants who do not have large SEC practices, but nonetheless, will have to live by the new rule you seem so intent on adopting.