Delphi Corporation

January 13, 2003

Jonathan G. Katz, Secretary
File No. S7-49-02
U.S. Securities and Exchange Commission
450 Fifth Street, NW, Washington, DC 20549-0609

Dear Mr. Katz:

Delphi Corporation respectfully submits our comments communicating our position on the Strengthening the Commission's Requirements Regarding Auditor Independence. We are generally very supportive of the proposed rules, and believe that they will assist in the restoration of investor confidence particularly as it relates to concerns surrounding the audit profession.

We do have several recommendations and comments as it relates to proposed partner rotation rules. As a multi-national company, we have many different external audit partners involved in our audit, in fact over 90 partners. We are concerned with the addition of other audit professionals to the five-year rotation schedule, outside of the lead engagement partner and concurring review partner. We support the five-year rotation, with a five-year timeout, for the lead engagement partner and concurring review partner.

We urge the Commission to consider that its proposed expanded rotation requirements outside of the lead engagement partner and concurring review partner will likely have the unintended consequences of risking a reduction in audit quality and increasing costs. This would occur because (1) audit firms may be forced to reduce the existing practice of transitioning the new engagement partner for one year prior to the assignment to the engagement, (2) decreased U.S. GAAP knowledge in important overseas locations could result due to audit firm elimination of international assignments to support major client assignments which are often used to train future client service partners and (3) limits would be placed on our access to specialized audit firm resources by industry.

We believe that our maximum risk of audit failure actually occurs in an engagement partner's first year on an assignment, given the size of our organization. In fact, we work very diligently with our auditors to ensure that new partners are given all of the training and information needed to complete the audits; expanding the rotation requirement will increase this need for training, and, in our opinion, increase audit risk.

In addition, we encourage the Commission to reconsider the role of specialists on the engagement. We understand these specialist roles are tantamount to the role performed by the National Office. That is, they are periodically consulted for special considerations. These specialists do not make audit decisions, nor in the vast majority of cases, actually interact with any decision-makers within our organization, but are a valuable source of expertise and advice to our audit partners.

Finally, we recommend that the Commission consider the following factors at it relates to transition. We must focus on maintaining the audit quality throughout the process. We believe that there is significant risk of a decline in audit quality if transition provisions do not provide for a reasonable implementation period. Factors to consider include:

  • Rotations will impact entire practices, not just one client (i.e., the "domino effect'), which may limit the number of industry-experienced resources available to serve clients.

  • Firms will be challenged with competitiveness factors. For example, many companies, including us, do not want a competitor's engagement partner immediately assigned to us, nor do we want the rotating engagement partner to be immediately assigned to a competitor. Consequently, many rotations will be interdependent, especially within certain industries (such as financial services and energy practices),

  • Although not impacting us, given the reaudit situations at a number of other registrants stemming from the Andersen situation, there are going to be a number of cases in the near term where audit partners will be opining on multiple years.

We recommend that the Commission use the following guidelines for lead engagement partner and concurring review partner transition, in an effort to help manage the audit partner changes while minimizing the effect on audit quality during the transition

  1. Effective for fiscal years beginning after July 15, 2003 (i.e., calendar 2004) and

  2. Includes time served prior to effective date of the rules.

We are very supportive of all of the proposed and final rules that the Commission has issued in the past several months. We applaud the Commission for all of its hard work on the numerous proposals issued in the past several months. As always, please contact us if you desire further input or clarification at (248) 813-2605.


John D. Sheehan
Chief Accounting Officer and Controller