Via Email: rule-comments@sec.gov

December 13, 2002

Jonathan G. Katz, Secretary
U.S. Securities and Exchange Commission
450 Fifth Street N.W.
Washington D.C. 20549-0609

Re: SEC File No. S7-49-02
Strengthening the Commissions' Requirements Regarding Auditor Independence

Members and Staff of the Commission:

The purpose of this letter is to comment on the proposed rulings for strengthening the Commission's requirements regarding auditor independence. These rulings as proposed will have a significant negative impact on our firm and on our clients.

We propose that provisions be included in the new rules to exempt small accounting firms that audit small issuers whose securities do not trade on any exchange from the partner rotation requirements.

We are a firm of six partners of which only three have experience auditing publicly held companies. We audit six entities that qualify as issuers under the Sarbanes-Oxley Act. Of these, five are limited partnerships that were syndicated by the same sponsor. The sixth entity is an inactive corporation. None of these entities are listed on a national exchange nor are their units/shares actively traded in any market. The largest capitalization of these entities is $37,000,000. Our firm is exempt under the current partner rotation requirements of the AICPA's SEC Practice Section due to the size of our firm and the limited number of publicly held audit clients as defined (i.e., the limited partnerships are all offered by one sponsor and, therefore, are considered one client for this purpose).

The proposed rules regarding partner rotation will effectively force us out of the business of auditing publicly held companies and limit the choices of audit firms for small publicly held businesses in our market area. Our current clients will be forced to change audit firms. Because the other local firms in our area are faced with the same size dilemma, our clients, as well as other small issuers, will be faced with higher fees because of the limited options available to them (i.e., large regional or national firms). This is on top of the additional costs of complying with other provisions of the Sarbanes-Oxley Act.

For the small issuer, a local accounting firm offers an alternative to a large regional or national firm who may not even have an office in the area. Because these small issuers are generally not small clients for a local accounting firm, more attention can be given to providing timely, efficient and effective audit services at a more reasonable cost. Without an exemption, many local firms will be unable to meet the partner rotation requirement. Therefore, the pool of accounting firms from which to choose will be limited. As the pool shrinks, the costs to the small issuer will increase with no enhancement in the quality of the audit process. How does this benefit the investor?

As noted above, our clients are limited partnerships that are not actively traded on any exchange or in the secondary market. There is little incentive for management to prepare fraudulent financial statements to enhance the market value of the partnership units because these are illiquid investments. The value to the investor partner is not dependent on the reported income in the financial statements but on the tax benefits and/or cash flow actually received by the investor partner. Additionally, management compensation is generally not tied to income as reported on the financial statements in these limited partnerships.

The suggestion regarding substituting a periodic forensic audit in lieu of partner rotation will not resolve the cost/benefit question for small business. Not only will the small business incur more costs relating to the audit but their employees will be disrupted by an outside firm unfamiliar with their operations coming in to "retest" the condition of their internal controls, accounting and reporting practices and whatever other matters are determined by the final rules. If the purpose is to determine that the independent auditors are doing their job, it should not be an imposition on the small business. Section 104 of the Sarbanes-Oxley Act already contains provisions for the Public Company Accounting Oversight Board to inspect registered accounting firms in order to identify problems that lead to audit failures. If the registered accounting firm receives a satisfactory inspection, it is redundant and costly to small businesses and their auditors to be subject to an additional forensic audit.

If upon issuing the final rules, you determine that there will be no exemption for small accounting firms, transitional relief will be crucial. Small accounting firms like ours will be in a position where they will immediately lose a significant percentage of their revenue if they cannot meet the partner rotation requirement on the effective date. It is unfair to put this burden on us without giving us ample time resolve this issue or find new revenue sources. It takes time to develop new business even in a good economy. In today's market, this will not happen overnight.

Very truly yours,

/s/ Spence, Marston, Bunch & Co.