From: John Ratliff [j.ratliff@danielratliff.com]
Sent: Monday, December 23, 2002 3:58 PM
To: rule-comments@sec.gov
Subject: File No. S7-49-02
       
      Dear Sirs,

      I would like to begin my comments on the proposed rules regarding 
auditor independence by thanking those at the SEC for their efforts to 
protect the interests of public investors.   I believe audit failures 
are rare, and your oversight of the reporting process is a significant 
reason for that success.

      That being said, I do have some concerns about the proposed new rules.  
I am a shareholder in a small CPA firm.  We have done SEC work on several 
occasions.  I have followed the work of other CPA’s in many instances (on 
both public and non-public clients), and have on more than one occasion found 
such work lacking.  Many larger firms have reduced audit scope to levels I 
feel are unacceptable.  Many smaller firms are doing work in areas they lack 
proper expertise.  But in my 25 years in the profession, I have never followed 
another CPA whose work I felt was inadequate due to independence concerns.

      There is no question that judgment can be impaired when a single client 
generates substantial (say, in excess of 25%) of the revenue in a given office.  
I don’t see any way to legislate around that issue.  However, to require firms 
to select auditors with large enough billing bases to avoid this issue would 
seriously jeopardize the ability of many smaller firms to compete for large 
clients.

      With respect to the many issues addressed in your proposed rule changes, 
the important question to ask is who do you want performing audits on public 
companies?  If the answer is only large national or international firms, I doubt 
that any such firms could not figure out a way to meet your proposed rules.  
However, I doubt they will have much of an impact on the true quality of the 
audit work performed.

      If you want smaller firms to participate in performing audits of public 
companies, it is likely that many will not be able to meet all of your rules – 
especially the rules relating to partner rotation.  We are a 3-shareholder firm.  
Although I have extensive SEC experience, I am the only audit partner in the 
firm.  As a result of the anticipated rule changes, we have decided to withdraw 
from membership in the SECPS, and discontinue work in the public sector.  We 
never did SEC work for any large registrants, but I feel we did quality work 
for several SB filers who could not afford the prices of the larger firms.  I 
only hope that you use caution in drafting rules that lead other quality small 
firms to make the same decision that we have.

      Respectfully,

      John G. Ratliff, CPA

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