Rubin, Brown, Gornstein & Co. LLP
One North Brentwood
St. Louis, MO 63105
(314) 290-3300
FAX (314) 290-3400

December 31, 2002

Mr. Jonathan G. Katz
U.S. Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549-06009

Subject: File No. S7-49-02 - Strengthening the Commission's Requirements Regarding Auditor Independence

Dear Mr. Katz:

Thank you for the opportunity to comment on the Commission's proposed amendments to its existing requirements regarding auditor independence. In particular, we take this opportunity to comment on our opposition to the proposed rule regarding partner rotation on the audit engagement.

Current SEC Practice Section rules require the rotation of the lead audit partner every seven years with a break in service of two years. Certain smaller CPA firms are exempted from these requirements. The Sarbanes-Oxley Act of 2002 (the Act) requires rotation of the lead audit partner and concurring review partner every five years with at least a one-year break in service. The Act does not allow for an exemption for smaller CPA firms. The Commission's proposed rules go far beyond those imposed by the Act by requiring the following:

  1. Rotation of every partner on the engagement team every five years with a five-year break in service.

  2. Partners subject to the rotation requirements include the lead audit partner, concurring review partner, client service partner and other partners performing audit services for the issuer, including tax partners who perform reviews of the tax accounts and disclosures included in the financial statements.

  3. Partners excluded from the proposed rotation requirements include partners assigned to "national office" duties (including both technical accounting and centralized quality control functions) who may be consulted on specific accounting issues related to an issuer.

We strongly oppose the more restrictive requirements proposed by the Commission. Our firm is a one-office, local firm with 34 partners and 250 professionals. We audit 12 public companies. The proposed rules will effectively mandate audit firm rotation for smaller firms and cease our ability to audit public companies. The Act does not require audit firm rotation; it only mandates a study to be performed to study the impact of such a far-reaching requirement. We believe it to be most prudent to wait for the results of this study before imposing such a punitive restriction on smaller CPA firms. This is detrimental for both smaller firms and their public clients. Smaller firms will be forced to either stop auditing public companies or merge with larger firms. Few firms are going to make significant investments in additional partners to compete in this increasingly regulated market. The result will be fewer firms auditing public companies at a higher cost. This will not benefit smaller CPA firms, public companies or their investors.

The Commission incorrectly assumes that only the larger firms and only the larger clients have more than two partners serving their public clients. Currently in our 50th anniversary as a firm, we have more experienced partners that serve as critical client service / relationship partners to our key clients. We also embrace our core value of teamwork. We strongly believe that audit teams with more than just one or two partners better serve our clients. It is not unusual for our public client audit teams to include a client service partner, a lead audit partner, a concurring review partner and a tax partner who reviews the tax accounts and financial statement disclosures. The newly proposed rules would likely force us out of the business of auditing public companies as we only have a handful of partners with SEC audit experience. Complying with the proposed rules would force us to limit the number of partners serving our clients. This would reduce the quality of our services and is something we will simply not do. For example, tax partners who also perform on-going tax compliance services to public audit clients will not be able to review the tax accounts and disclosures included in the financial statements because they would then be subject to the rotation requirements. This makes no sense to us. We cannot think of a more qualified partner to review the tax accruals than the partner in charge of preparing the tax returns. This does not result in increased audit quality.

We ask the Commission to clarify the definition of a partner with "national office" duties. Smaller firms, especially one-office firms, would benefit from further clarification of which partners fall under this exemption to the rotation requirements.

We also oppose the suggestion of requiring periodic forensic audits of public companies to obviate the partner rotation requirements. This creates additional unnecessary cost to public companies. The inspection of registered accounting firms imposed by the Act is meant to adequately ensure the quality of audits being performed. We do not see the need for the redundancy created by requiring forensic audits. In addition, due to the increased level of testing performed in a forensic audit as compared to a financial statement audit performed in accordance with generally accepted auditing standards, we believe that audit firms will unnecessarily drive up the costs of their audits by performing work well beyond that required by current professional standards for fear of the findings of forensic auditors.

In principle, we agree with the concept of partner rotation and the goal of maintaining auditor independence. However, we believe that the proposed rules, which go well beyond those required by the Act, do more harm than good to the smaller CPA firms, public companies and their investors. We strongly recommend an exemption to the proposed rules for smaller CPA firms, like ours.

Respectfully submitted,

Rubin, Brown, Gornstein & Co. LLP