By E-mail: rule-comments@sec.gov

August 28, 2000

Attachment to this EMAIL: Excel 97 Format

SEC Release 34-42994 JOHNCPA4411.xls

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SEC Release 34-42994 response A JOHNCPA4411.doc

A formatted copy of this email with a table at end that is most of the "Proposal Analysis" worksheet from the Excel 97 file above (SEC Release 34-42994 JOHNCPA4411.xls)

Revision of the Commission's Auditor Independence Requirements

Thank you for the opportunity to respond to this important proposal. I have been involved in Public Accounting since June 1967, when I was hired by a then local accounting firm. I worked there for 7.25 years and then opened my own firms over the next 10 years. For the last 16 years I have been a sole practitioner with assistance from a part-time CPA and an administrative staff person. I stopped performing audit work in 1984, although I was requested to return to my first employer in 1989 to teach an audit class of my own design to sixty of their personnel.

I am very impressed with the analysis in the executive summary of the Release due to its overall inclusion of most of the changes that I have observed over the last thirty odd years. However, it does not note what may be the most important changes.

1. The statistical analyses in appendix B sites the large firms as "Big 5/Big 6 Public Accounting Firms," but the analysis does not relate to this significant shrinkage in the number of the large firms over the years from the Big 8.

2. The statistical analyses also do not track the shift in the number of SEC clients being audited by non-Big 5/Big 6 Public Accounting Firms. I believe that, if examined, you will see that there has been an overwhelming shift in this area over the last 20 years.

3. The degradation in the value of the audit fees demanded for services rendered.

Due to my limited amount of time available, as a sole owner of a small CPA firm, I did not read the whole document. However, as my comments are of a limited nature and generally supportive of the concerns that you raise in the executive summary, I do not believe that it is absolutely necessary that I read the whole document.

In Section II C 2 (c)(i) "Auditor Vulnerability to Economic Pressures From Audit Clients" of your Release you state:

"For example, an audit firm may agree to perform the audit of a start-up company for fees significantly below market rates for a few years, in anticipation of "recouping" such an investment in the client through a subsequent initial public offering or performance of consulting services.

"We also have concerns about the effect on an accounting firm's internal culture when the firm is trying to be an audit client's vendor of choice. As non-audit services become more important to a firm, that firm may care less about auditing and more about expanding its service lines. The factors that drive a high quality audit, including the core values of the auditing profession, may diminish in importance to the firm, as will the influence of those firm members who exemplified those core values in their own professional careers."

For many years, in the Sixties, Seventies and Eighties, it was my anecdotal observation that the then Big 8 firms were involved in raiding clients from each other in order to expand their practices. To affect this goal they continually reduced the cost of the audit in order to increase the number of audit clients they had. Soon, substantially all of the available SEC filing clients were being serviced by the Big 8 firms. So the Big 8 firms simply started consuming each other to become the Big 5.

One would assume that by the Big 5 controlling the market, they would increase the audit fees. But remember there are still qualified CPA firms available to perform the MCS work that are not part of the Big 5. And there are other consulting firms that also compete for the MCS services.

Audits became fixed bid situations. Bids were often based on excluding any allowance for contingencies. It was difficult to later modify the fee based on unforeseen situations that arose. (Of course this reduced the number of unforeseen situations that arose.) On the other hand, MCS engagements were often redefined, thereby creating opportunities to recoup low initial bids for the MCS work and thus increasing overall firm profitability.

The rationale seemed to be that the MCS services were so lucrative that, it was worth giving the audit away to get the MCS services. Now, I see by your statistics, that large, but shrinking, percentages of the audit clients (83.8 % in 1983 to 74.3% in 1999) are not provided MCS services by the firms (The percentage was at a high point in 1993 from a low point in 1988 of 75.4%). However, if by unsaid agreements, the Big 5 firms control who gets the MCS services for their clients, among their competitors, as a group they still control the market as a whole. Their appetite for the clients is served and their limitation of "outside the club of 5" firms getting the work is limited, reducing their need to worry about vast numbers of competitors. Each of them only has to worry about four other firms' marketing activities. Additionally, the cultures of the firms may be such that each one has less than four other competitors. Looking at the reduction from 8 to 5 large firms, the combinations that occurred appear, to me, to be the only natural choices that could have been made.

In fact this intimidates the non-Big 5 firms from even competing effectively and makes it more likely that many of the potential lower tier firms with sizable practices will be consumed by the Big 5, increasing their concentration even further. The firm I worked for in the 60's and 70's was acquired in the 90's after rising to a second tier firm with a national reputation.

In Section II C 2 (c)(ii), "Independence Issues inherent in the Nature of Certain Non-audit Services" you question any non-audit work as being potentially risky. In my proposal, later, I ignore the following extension of what you seem to be talking about. The major conflict where an auditor is questioning his own (the firms') decisions and recommendations is in the tax area. Firms have expertise that is put at the disposal of the client. Advice, decisions in preparation of compliance reports, strategies developed to minimize taxes are all parts of the CPA firms' activities. In fact, some firms seek out unique solutions and then "sell" them to clients as products. Who evaluates the risk of those products? The auditors can't look to the tax department for advice; the tax department developed the product! So it is not just a matter of a conflict, it is also a matter being cut off from the availability of competent advice and expertise to evaluate tax decisions and risks.

I have not performed any part of an audit since 1984. I have no intention of re-entering the audit arena. My comments are due to my desire to see the ethical standards of my profession maintained and returned to formerly high personal standards in addition to the public's and SEC's standards.

A recent announcement by the AICPA stated that for the first time in the history of the organization, the number of AICPA members working in CPA type firms had dropped below 50%. It is obvious that Big 5 firms have significant "clout" over the operations of and positions taken by the AICPA. Therefore, can either I or the SEC look to the AICPA as a valid voice for the profession in matters such as this where they are supposed to be dedicated to keeping its membership watching out for the investment viability of publicly-held firms.

My main reason for even being interested in responding has to do with an article in The Practicing CPA, for August 2000, published by the AICPA for smaller firms. In it they use "fear" statements such as "A Limit on Service Offerings," and "The Independence Bogeyman." Finally, they demand a "A call to arms." Their "Call to Arms" section states:

"Warding off the regulatory burdens that unfairly restrict the growth opportunities of local, independent firms is in the best interests of PCPS members." (Emphasis added.)

I am amazed at their blatant attempts to manipulate me to participate in support of the objectives of the Big 5 firms with a veiled threat that the SEC's rules are going to affect my practice. The AICPA has done very little over the years of any consequence that has increased my ability to compete, on a level playing field, for clients against the large firms. I will not simply support their Big 5 agenda based on a remote outcome for my practice.

Proposal

I have a proposal for you to consider that is intended to promote independence and create renewed competition in the area of servicing SEC clients' need for audits. I believe this proposal is complementary to your proposals, not a replacement.

1. Set a maximum ratio of total fees that may be earned from MCS services, regardless of the source (i.e., SEC audit clients of the firm, SEC non-audit clients of the firm, other clients of the firm). In my accompanying example I used 25%.

2. Set a minimum ratio of Audit fees to Tax service fees. In my accompanying example I used 150% of Tax service fees.

3. Require publication by each SEC practicing firm to publish the results on a firm-wide basis and file them with the SEC.

4. In order to attempt to avoid other possible undesired results, all amount would be based on revenues from SEC filing clients only (regardless of whether the firms does audit work for the client). Otherwise the Big 5 may simply start "auditing" every street vendor to increase audit revenues.

5. Allow the firms three years to meet the standard.

The intended results:

1. If an audit fee is reduced, it will impact the amount of tax work that can be performed and the amount of MCS services, firm wide, that can be provided.

2. Audit work will become strategic to the CPA firm.

3. The image of the firms as "audit firms," as opposed to "financial services firms that do audits" will be enhanced in the long run.

4. Firms will not be as likely to cut corners on the audit because of a desire to make a reasonable profit on an audit that has been priced below profitability.

5. Firms that have the audit expertise, but not the financial resources to compete at unreasonably low prices for audits will, once again, have an opportunity to reenter the audit services market making it more competitive.

I appreciate this opportunity to contribute my thoughts on this matter and provide you with the net results of my thirty years working and observing the continuing decay of my profession's standards and focus. Removing the "commission receipt prohibition" has changed many CPA's into sellers of product instead of independent advisers. I believe that has changed the culture of the profession. I hear it at classes and conferences. The discussion is not how to analyze and understand, but rather on how to sell a product. That kind of approach has got to affect the audit staff.

The attached Excel 97 file contains the statistical data from your release as contained on the Web site. On Proposal Analysis, I have added some additional analyses of the data that, I believe supports my conclusions and validate some of my anecdotal observations. The major portion of the analysis of your data that is the basis of my proposals is included as a separate email attachment version of this email in a table at the end of the email text. It is too bad that the data does not extend back to the early Seventies when these changes started to occur, in my judgement.

Very Truly yours,

/S/ John Trapani, CPA
Member of the AICPA &
California Society of CPA's

From: SEC Release 34-42994.xls. Proposal Analysis - By John Trapani, CPA

---

Proposal Analysis

Additional Computations
Proposed Limitations and Affects on Historical Results
A&A	150%	60%		150% of Tax Service Revenue
Tax	100%	40%		Variables are in yellow (gray) cells - all computations result from these variables
Total	250%	100%
(Example)
Total	100,000
A&A / Tax Services	75,000			25% of Total Revenue for MCS
A&A	45,000	45%
Tax	30,000	30%	67%	of Audit services
MCS & Other	25,000	25%	56%	of Audit services
Total	100,000	100%
	1999	1998	1997	1996	1995	1994	1993
Actual Revenue
A&A	9,150	7,812	6,738	6,195	5,762	5,823	5,485
Tax	5,764	4,871	4,110	3,477	2,968	2,673	2,714
MCS & Other	15,702	13,234	9,618	7,633	6,321	4,796	3,856
Total	30,616	25,917	20,466	17,305	15,051	13,292	12,055
Revenue limitation
A&A - actual	9,150	7,812	6,738	6,195	5,762	5,823	5,485
Tax - limited	6,100	5,208	4,492	4,130	3,841	3,882	3,657
MCS & Other - limited	3,389	2,893	2,496	2,294	2,134	2,157	2,031
Total firms' limited Revenue	18,639	15,913	13,726	12,619	11,737	11,862	11,173
Limited total - percent of Actual	61%	61%	67%	73%	78%	89%	93%
Reductions due to limitation
Tax	-336	-337	-382	-653	-873	-1,209	-943
MCS & Other	12,313	10,341	7,122	5,339	4,187	2,639	1,825
Total Reductions in Revenue	11,977	10,004	6,740	4,686	3,314	1,430	882
Computed Total Fees Based on Actual "Tax" and "MCS" as "Driver" to determine Total Fees
Tax	19,213	16,237	13,700	11,590	9,893	8,910	9,047
MCS & Other	62,808	52,936	38,472	30,532	25,284	19,184	15,424
Greater of "Tax" or "MCS & Other"	62,808	52,936	38,472	30,532	25,284	19,184	15,424
A&A - Required	28,264	23,821	17,312	13,739	11,378	8,633	6,941
Tax - Required	18,842	15,881	11,542	9,160	7,585	5,755	4,627
MCS & Other - Actual	15,702	13,234	9,618	7,633	6,321	4,796	3,856
Total Resulting Fees	62,808	52,936	38,472	30,532	25,284	19,184	15,424
A&A - Short fall	19,114	16,009	10,574	7,544	5,616	2,810	1,456
Tax - Short fall	13,078	11,010	7,432	5,683	4,617	3,082	1,913
MCS & Other - no change	0	0	0	0	0	0	0
Total	32,192	27,019	18,006	13,227	10,233	5,892	3,369
Increase in Revenue needed to accept all actual MCS & Other engagements
A&A	208.9%	204.9%	156.9%	121.8%	97.5%	48.3%	26.5%
Tax	214.4%	211.4%	165.4%	137.6%	120.2%	79.4%	52.3%
Reallocation of Total Actual Revenue Based on Proposed Limitations
	1999	1998	1997	1996	1995	1994	1993
Actual Revenue
A&A	9,150	7,812	6,738	6,195	5,762	5,823	5,485
Tax	5,764	4,871	4,110	3,477	2,968	2,673	2,714
MCS & Other	15,702	13,234	9,618	7,633	6,321	4,796	3,856
Total	30,616	25,917	20,466	17,305	15,051	13,292	12,055
Limitations
A&A	45%
Tax	30%
MCS & Other	25%
Total	100%
A&A	13,777	11,663	9,210	7,787	6,773	5,981	5,425
Tax	9,185	7,775	6,140	5,192	4,515	3,988	3,617
MCS & Other	7,654	6,479	5,117	4,326	3,763	3,323	3,014
Total	30,616	25,917	20,467	17,305	15,051	13,292	12,056
Shift in Revenue
A&A	4,627	3,851	2,472	1,592	1,011	158	-60
Tax	3,421	2,904	2,030	1,715	1,547	1,315	903
MCS & Other	-8,048	-6,755	-4,501	-3,307	-2,558	-1,473	-842
Net	0	0	1	0	0	0	1
Assumption based computations
	1993	1994	1995	1996	1997	1998	1999
Actual Revenue
A&A	5,485	5,823	5,762	6,195	6,738	7,812	9,150
Tax	2,714	2,673	2,968	3,477	4,110	4,871	5,764
MCS & Other	3,856	4,796	6,321	7,633	9,618	13,234	15,702
Total	12,055	13,292	15,051	17,305	20,466	25,917	30,616
Number of Audit Clients of Big 5 (Big 6/Big 8) Firms	12,362	12,841	12,793	11,755	11,846	12,348	12,769
Percentage of SEC clients audited by Big 5 (Big 6/Big 8) Firms - -computed from Table 4 data	77%	77%	77%	77%	77%	77%	77%
Assumed total SEC Clients	16,133	16,758	16,695	15,340	15,459	16,114	16,664
Change		625	-63	-1,355	119	655	550
Average Audit fee	339,986	347,476	345,133	403,846	435,863	484,796	549,088
Percentage Increase Year-to-Year		102%	99%	117%	108%	111%	113%
Audit Fees for SEC Audit Clients of Big 5 (Big 6/Big 8) Firms with 0% MCS Fees	83.8%	82.6%	81.8%	77.8%	78.1%	73.6%	74.3%
Assumed MCS fees from Non-SEC clients	4,596	4,810	4,713	4,820	5,262	5,750	6,798
SEC Client MCS fees	-740	-14	1,608	2,813	4,356	7,484	8,904
Percentage of Audit Fees	?	?	28%	45%	65%	96%	97%

The Securities and Exchange Commission					SEC Release 34-42994
Proposed Rule:
Revision of the Commission's Auditor Independence Requirements
Proposal
By: John Trapani, CPA
Estimated revenue by service line - SEC Data
A&A	$9,150	$7,812	$6,738	$6,195	$5,762	$5,823	$5,485
Tax	$5,764	$4,871	$4,110	$3,477	$2,968	$2,673	$2,714
MCS & Other	$15,702	$13,234	$9,618	$7,633	$6,321	$4,796	$3,856
Annual growth rate of estimated U.S. revenues from 1993 to 1999
A&A	17.1%	15.9%	8.8%	7.5%	-1.0%	6.2%
Tax	18.3%	18.5%	18.2%	17.1%	11.0%	-1.5%
MCS & Other	18.6%	37.6%	26.0%	20.8%	31.8%	24.4%
Estimated percentage of audit revenue
A&A	100%	100%	100%	100%	100%	100%	100%
Tax	63%	62%	61%	56%	52%	46%	49%
MCS & Other	172%	169%	143%	123%	110%	82%	70%
# clients	# firms	Average number of SEC clients	Average MCS fees from SEC clients to total fees	Average MCS fees from SEC clients to total MCS fees		Approximate Number of Total SEC Filers
> 1000	5	2554	10.00%	22.80%		12770	77%
100 - 1000	3	314	1.00%	3.60%		942	6%
20 - 99	20	36	1.00%	9.90%		720	4%
19 - 3	258	6	0.90%	7.40%		1548	9%
2	167	2	0.50%	3.30%		334	2%
1	351	1	0.40%	5.00%		351	2%
						16665	100%
Proposal
By: John Trapani, CPA
Additional Computations
Proposed Limitations and Affects on Historical Results
A&A	150%	60%		150% of Tax Service Revenue
Tax	100%	40%		Variables are in yellow cells - all computations result from these variables
Total	250%	100%
(Example)
Total	100,000
A&A / Tax Services	75,000			25% of Total Revenue for MCS
A&A	45,000	45%
Tax	30,000	30%	67%	of Audit services
MCS & Other	25,000	25%	56%	of Audit services
Total	100,000	100%
	1999	1998	1997	1996	1995	1994	1993
Actual Revenue
A&A	9,150	7,812	6,738	6,195	5,762	5,823	5,485
Tax	5,764	4,871	4,110	3,477	2,968	2,673	2,714
MCS & Other	15,702	13,234	9,618	7,633	6,321	4,796	3,856
Total	30,616	25,917	20,466	17,305	15,051	13,292	12,055
Revenue limitation
A&A - actual	9,150	7,812	6,738	6,195	5,762	5,823	5,485
Tax - limited	6,100	5,208	4,492	4,130	3,841	3,882	3,657
MCS & Other - limited	3,389	2,893	2,496	2,294	2,134	2,157	2,031
Total firms' limited Revenue	18,639	15,913	13,726	12,619	11,737	11,862	11,173
Limited total - percent of Actual	61%	61%	67%	73%	78%	89%	93%
Reductions due to limitation
Tax	-336	-337	-382	-653	-873	-1,209	-943
MCS & Other	12,313	10,341	7,122	5,339	4,187	2,639	1,825
Total Reductions in Revenue	11,977	10,004	6,740	4,686	3,314	1,430	882
Computed Total Fees Based on Actual "Tax" and "MCS" as "Driver" to determine Total Fees
Tax	19,213	16,237	13,700	11,590	9,893	8,910	9,047
MCS & Other	62,808	52,936	38,472	30,532	25,284	19,184	15,424
Greater of "Tax" or "MCS & Other"
	62,808	52,936	38,472	30,532	25,284	19,184	15,424
A&A - Required	28,264	23,821	17,312	13,739	11,378	8,633	6,941
Tax - Required	18,842	15,881	11,542	9,160	7,585	5,755	4,627
MCS & Other - Actual	15,702	13,234	9,618	7,633	6,321	4,796	3,856
Total Resulting Fees	62,808	52,936	38,472	30,532	25,284	19,184	15,424
A&A - Short fall	19,114	16,009	10,574	7,544	5,616	2,810	1,456
Tax - Short fall	13,078	11,010	7,432	5,683	4,617	3,082	1,913
MCS & Other - no change	0	0	0	0	0	0	0
Total	32,192	27,019	18,006	13,227	10,233	5,892	3,369
Increase in Revenue needed to accept all actual MCS & Other engagements
A&A	208.9%	204.9%	156.9%	121.8%	97.5%	48.3%	26.5%
Tax	214.4%	211.4%	165.4%	137.6%	120.2%	79.4%	52.3%
Reallocation of Total Actual Revenue Based on Proposed Limitations
	1999	1998	1997	1996	1995	1994	1993
Actual Revenue
A&A	9,150	7,812	6,738	6,195	5,762	5,823	5,485
Tax	5,764	4,871	4,110	3,477	2,968	2,673	2,714
MCS & Other	15,702	13,234	9,618	7,633	6,321	4,796	3,856
Total	30,616	25,917	20,466	17,305	15,051	13,292	12,055
Limitations
A&A	45%
Tax	30%
MCS & Other	25%
Total	100%
A&A	13,777	11,663	9,210	7,787	6,773	5,981	5,425
Tax	9,185	7,775	6,140	5,192	4,515	3,988	3,617
MCS & Other	7,654	6,479	5,117	4,326	3,763	3,323	3,014
Total	30,616	25,917	20,467	17,305	15,051	13,292	12,056
Shift in Revenue
A&A	4,627	3,851	2,472	1,592	1,011	158	-60
Tax	3,421	2,904	2,030	1,715	1,547	1,315	903
MCS & Other	-8,048	-6,755	-4,501	-3,307	-2,558	-1,473	-842
Net	0	0	1	0	0	0	1
Assumption based computations
	1993	1994	1995	1996	1997	1998	1999
Actual Revenue
A&A	5,485	5,823	5,762	6,195	6,738	7,812	9,150
Tax	2,714	2,673	2,968	3,477	4,110	4,871	5,764
MCS & Other	3,856	4,796	6,321	7,633	9,618	13,234	15,702
Total	12,055	13,292	15,051	17,305	20,466	25,917	30,616
Number of Audit Clients of Big 5 (Big 6/Big 8) Firms	12,362	12,841	12,793	11,755	11,846	12,348	12,769
Percentage of SEC clients audited by Big 5 (Big 6/Big 8) Firms - -computed from Table 4 data	77%	77%	77%	77%	77%	77%	77%
Assumed total SEC Clients	16,133	16,758	16,695	15,340	15,459	16,114	16,664
Change		625	-63	-1,355	119	655	550
Average Audit fee	339,986	347,476	345,133	403,846	435,863	484,796	549,088
Percentage Increase Year-to-Year		102%	99%	117%	108%	111%	113%
Audit Fees for SEC Audit Clients of Big 5 (Big 6/Big 8) Firms with 0% MCS Fees	83.8%	82.6%	81.8%	77.8%	78.1%	73.6%	74.3%
Assumed MCS fees from Non-SEC clients	4,596	4,810	4,713	4,820	5,262	5,750	6,798
SEC Client MCS fees	-740	-14	1,608	2,813	4,356	7,484	8,904
Percentage of Audit Fees	?	?	28%	45%	65%	96%	97%

Table 1

The Securities and Exchange Commission					SEC Release 34-42994
Proposed Rule:
Revision of the Commission's Auditor Independence Requirements
17 CFR Parts 210 and 240
[Release Nos. 33-7870; 34-42994; 35-27193; IC-24549; IA-1884; File No. S7-13-00]
RIN 3235-AH91
Revision of the Commission's Auditor Independence Requirements
Table 1
Estimated U.S. Revenues for Big 5/Big 6 Public Accounting Firms
Source: PAR
	1999	1998	1997	1996	1995	1994	1993
Total	$30,616	$25,917	$20,492	$17,305	$15,051	$13,291	$12,162
Estimated revenue mix by service line
A&A	30%	30%	33%	36%	38%	44%	45%
Tax	19%	19%	20%	20%	20%	20%	22%
MCS & Other	51%	51%	47%	44%	42%	36%	32%
Estimated revenue by service line
A&A	$9,150	$7,812	$6,738	$6,195	$5,762	$5,823	$5,485
Tax	$5,764	$4,871	$4,110	$3,477	$2,968	$2,673	$2,714
MCS & Other	$15,702	$13,234	$9,618	$7,633	$6,321	$4,796	$3,856
Compound growth rate of estimated U.S. revenues from 1993 to 1999
A&A	9%
Tax	13%
MCS & Other	26%
Information sources:
PAR - Public Accounting Report, "Special Supplement: Annual Survey of National Accounting Firms - 2000, March 31, 2000.
Annual Reports to SECPS - Annual reports filed with the AICPA Division for CPA Firms SECPS member public accounting firms
SECPS Reports - Reports prepared by the AICPA Division for CPA Firms

Table 2

The Securities and Exchange Commission							SEC Release 34-42994
Proposed Rule:
Revision of the Commission's Auditor Independence Requirements
17 CFR Parts 210 and 240
[Release Nos. 33-7870; 34-42994; 35-27193; IC-24549; IA-1884; File No. S7-13-00]
RIN 3235-AH91
Revision of the Commission's Auditor Independence Requirements
Table 2
Composition of Big 5 (Big 6/Big 8) U.S. Revenues by Service
Source: PAR, Annual Reports to SECPS, and SECPS Reports
Year		A&A			Tax			MCS & Other
		Average	Median		Average	Median		Average	Median
1981		NA	NA		NA	NA		15%	13%
1984		NA	NA		NA	NA		16%	14%
1986		NA	NA		NA	NA		18%	18%
1988		55%	57%		23%	23%		22%	20%
1993		46%	51%		23%	22%		30%	27%
1994		45%	51%		20%	21%		34%	28%
1995		40%	43%		20%	20%		40%	35%
1996		37%	40%		21%	22%		42%	39%
1997		34%	36%		21%	21%		45%	42%
1998		31%	34%		20%	19%		49%	47%
1999		31%	33%		19%	18%		50%	49%
NA indicates that item is not reported or not available
Abbreviations of service lines:
A&A - accounting and auditing
MCS & Other - management consulting services and other non-audit, non-tax services
Information sources:
PAR - Public Accounting Report, "Special Supplement: Annual Survey of National Accounting Firms - 2000, March 31, 2000.
Annual Reports to SECPS - Annual reports filed with the AICPA Division for CPA Firms SECPS member public accounting firms
SECPS Reports - Reports prepared by the AICPA Division for CPA Firms

Table 3

The Securities and Exchange Commission								SEC Release 34-42994
Proposed Rule:
Revision of the Commission's Auditor Independence Requirements
17 CFR Parts 210 and 240
[Release Nos. 33-7870; 34-42994; 35-27193; IC-24549; IA-1884; File No. S7-13-00]
RIN 3235-AH91
Revision of the Commission's Auditor Independence Requirements
Table 3
Range of MCS Fees to Audit Fees for SEC Audit Clients of Big 5 (Big 6/Big 8) Firms
Source: Annual Reports to SECPS and SECPS Reports
Year		# clients	0%	1-25%	26-50%	51-100%	> 100%		>50%	>25%
1984		10,110	NA	NA	NA	NA	1.00%		NA	NA
1986		11,439	NA	NA	1.90%	1.20%	1.20%		2.50%	4.40%
1988		10,386	75.40%	19.10%	2.40%	1.60%	1.40%		3.10%	5.50%
1989		11,164	77.30%	17.00%	2.50%	1.80%	1.50%		3.20%	5.70%
1990		11,277	81.20%	13.50%	2.40%	1.50%	1.30%		2.80%	5.20%
1991		11,520	83.40%	12.50%	1.90%	1.40%	0.80%		2.20%	4.10%
1992		11,809	79.20%	16.50%	2.10%	1.10%	1.10%		2.20%	4.30%
1993		12,362	83.80%	11.50%	2.20%	1.30%	1.20%		2.50%	4.70%
1994		12,841	82.60%	12.50%	2.10%	1.40%	1.30%		2.80%	4.90%
1995		12,793	81.80%	13.40%	2.30%	1.20%	1.20%		2.40%	4.70%
1996		11,755	77.80%	16.10%	2.60%	1.90%	1.50%		3.40%	6.10%
1997		11,846	78.10%	14.80%	2.90%	2.10%	2.10%		4.20%	7.10%
1998		12,348	73.60%	16.50%	3.60%	3.10%	3.20%		6.40%	10.00%
1999		12,769	74.30%	14.30%	3.70%	3.00%	4.60%		7.60%	11.30%
NA indicates that item is not reported or not available
Information sources:
PAR - Public Accounting Report, "Special Supplement: Annual Survey of National Accounting Firms - 2000, March 31, 2000.
Annual Reports to SECPS - Annual reports filed with the AICPA Division for CPA Firms SECPS member public accounting firms
SECPS Reports - Reports prepared by the AICPA Division for CPA Firms

Table 4

The Securities and Exchange Commission						SEC Release 34-42994
Proposed Rule:
Revision of the Commission's Auditor Independence Requirements
17 CFR Parts 210 and 240
[Release Nos. 33-7870; 34-42994; 35-27193; IC-24549; IA-1884; File No. S7-13-00]
RIN 3235-AH91
Revision of the Commission's Auditor Independence Requirements
Table 4
MCS Activity for Public Accounting Firms Based on Number of SEC Audit Clients
For Most Recent Reporting Year
Source: SECPS Report
# clients		# firms		Average number of SEC clients		Average MCS fees from SEC clients to total fees		Average MCS fees from SEC clients to total MCS fees
> 1000		5		2554		10.00%		22.80%
100 - 1000		3		314		1.00%		3.60%
20 - 99		20		36		1.00%		9.90%
19 - 3		258		6		0.90%		7.40%
2		167		2		0.50%		3.30%
1		351		1		0.40%		5.00%
Information sources:
PAR - Public Accounting Report, "Special Supplement: Annual Survey of National Accounting Firms - 2000, March 31, 2000.
Annual Reports to SECPS - Annual reports filed with the AICPA Division for CPA Firms SECPS member public accounting firms
SECPS Reports - Reports prepared by the AICPA Division for CPA Firms