Comments on Proposed Rule:
Revision of the Commission's Auditor
Independence Requirements
[Release Nos. 33-7870; 34-42994; 35-27193; IC-24549; IA-1884; File No. S7-13-00]
Author: at Internet
Date: 09/21/2000 10:20 AM
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TO: RULE-COMMENTS at 03SEC
Subject: FILE NO. S7-13-00
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Dear Sir:
I wish to comment on the proposed rules from the Securities and Exchange
Commission regarding prohibiting
non-audit services and audit services to be provided by the same firm.
First of all, there are already safeguards in place to monitor this issue.
All CPA firms which prepare any type of financial statements (audited or
unaudited) are subject to an independent peer review every three years. This
review includes specific procedures to determine any lack of independence
that might exist between the auditor and
its client. The American Institute of Certified Public Accountants (AICPA)
as well as our own state society of
CPA's (MSCPA) also provides technical assistance to help consult and resolve
practitioner questions on independence issues.
We comply with current independence rules regarding ownership, related party
transactions, loans to or from clients,
and any other applicable rules. Those alone create some problems which we
are willing to accept. For example, we have had to refuse audit
engagements of a condominium association because a professional staff
member of our firm
was a unit owner. We understand the reason for this and don't propose any
changes.
As a CPA in public practice, I object to the proposed rule which would
severely limit the non-audit services which a CPA firm would perform for a
client who is also an audit client. If this
rule should be seen as a model for independence standards, other regulatory
agencies, such as the state boards of accountancy, could adopt similar rules
which would impact us all. If adopted, this proposal would significantly
limit the services that, particularly those of us serving non-public clients
are able to offer. If we were not able to provide non-audit services
throughout the year, it would greatly reduce our income and have a negative
effect on our firm. The knowledge of a company which
is gained by performing other services for them can help a great deal in
successfully planning and executing an audit.
There are some very good items in the SEC's proposals such as the
long-overdue modernization of family rules, which we support. However,
these should not be tied to the controversial scope of services proposal.
Thank you for considering my comments.
Sincerely,
Lester Adelstein, CPA
Author: "Mahoney Heineman & Co.; P.C." at Internet
Date: 09/21/2000 3:18 PM
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TO: RULE-COMMENTS at 03SEC
Subject: S7-13-OO
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Securities and Exchange Commission
450 Fifth Street. N.W.
Washington, D.C. 20549-0609
Dear Mr Katz,
I am a CPA with twenty-five years experience. I am against your proposed
rules regarding CPAs and "scope of services". I don't think it is necessary
and I think it will end up hurting me financially. I do not do any SEC
work, nor does the firm I work for.
I do not think the rules are neccessary because insurance agencies will step
in and set up rules for SEC practise CPA's in order for them to be insured.
Why get the government involved? In addition, the AICPA has or will address
many of your concerns. Why get the government involved??
Your federal regulation will trickle down to the state level where adoption
of regulations will restrict my practise in ways you did not intend. It
will hurt me financially. Why get the government involved???
I believe this is a rather complex area. More time should be taken in
finding a solution. Please delay or permanently put off the proposed
regulations.
Sincerely,
Richard H. Baker, CPA
915 East Wood Haven Drive
Alexandria, IN 46001
Author: "Betty Bell" at Internet
Date: 09/21/2000 11:47 AM
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TO: RULE-COMMENTS at 03SEC
Subject: File No. S7-13-00
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Gentlemen:
The proposed rule contains a provision limiting the scope of services CPA
firms may render to their audit clients. I realize that these rules
presently apply to public companies overseen by the SEC. I am concerned
that in
the future State Boards of Public Accountancy, banks, and other institutions
subject to governmental oversight would follow the leader and adopt the SEC
independence rules.
My firm is small and performs auditing, tax, bookkeeping, management, and
compilation and review services for small businesses, non-profits,
individuals, and fiduciaries. To require different firms to provide these
services would increase costs of these small clients. The standards
overload has resulted in many of our small clients using the income tax
method of accounting. They simply can not afford large accounting fees!
Also, my firm is located a small town of approximately 20,000 population.
There are just a few CPA firms to service the businesses. Your proposal, if
applicable to small firms' clients, would force some businesses to use CPA
firms at least 80 miles away. (Abilene, Texas is the largest city in our
area of the State of Texas.)
I urge you to reconsider this portion of the proposed rule.
Mary E. Beniteau Bell, CPA
Bell & Isbell, L.L.P.
Brownwood, TX 76801
Author: "Bertsch; Ken" at Internet
Date: 09/21/2000 3:19 PM
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TO: RULE-COMMENTS at 03SEC
Subject: S7-13-00
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<>
Enclosed is an HTML copy of TIAA-CREF's comment letter on the proposed
Revision of the Commission's Auditor Independence Requirements, File No.
S7-13-00. Please contact me if there are any problems with the file.
Best wishes,
Kenneth A. Bertsch
kbertsch@tiaa-cref
212-916-4972
Author: "Bucki; William" at Internet
Date: 09/21/2000 4:20 PM
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TO: RULE-COMMENTS at 03SEC
TO: CHAIRMANOFFICE at SEC1
TO: "'dick@durbin.senate.gov'" at Internet
TO: "'Senator_Fitzgerald@fitzgerald.senate.gov'" at Internet
CC: "'fedleg@aicpa.org'" at Internet
Subject: CORRECTED SEC Reference file no. S7-13-00
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> From: William E. Bucki CPA
> 3235 - 186th Street
> Lansing, IL 60438-3233 *corrected zip code suffix*
> Phone: (708) 418-2044
> E-mail: william.bucki@switchboardmail.com
> Re: SEC Reference file no. S7-13-00
> As an Illinois resident and licensed CPA, I strongly urge you to get the
> SEC NOT to implement the proposal to restrict the services offered by
> accounting firms. Reasons are outlined below:
> * The SEC has based its decision to move forward with this rule
> prohibiting non-audit services without facts or evidence. Even the SEC
> admits that there is no empirical evidence that non-audit services have
> compromised audit quality or auditor independence, nor ever caused an
> audit failure. None of the studies or reports cited by the SEC concluded
> that the scope of services impaired audit effectiveness, or that an
> exclusionary ban was necessary or appropriate. The SEC's proposed rule is
> a solution in search of a problem.
> * The SEC ignored the conclusion of the current Panel on Audit
> Effectiveness of the Public Oversight Board, a panel that was formed at
> the request of the SEC. The panel concluded that, "both the profession and
> the quality of audits are fundamentally sound." The panel said it could
> find no evidence that the provision of non-audit services has hurt audit
> quality. On the contrary, it concluded that in numerous instances
> non-audit services contributed to a more effective audit.
> * Most dangerous for the accounting profession is the likely prospect
> that the proposed rule would set a precedent for other regulators. Even
> accounting firms that do not audit SEC registrants could be impacted by
> these new rules. The proposed SEC rule would be viewed as the new model by
> state boards of accountancy, as well as federal (e.g., banking and ERISA)
> and other regulators. These new proposed SEC rules could influence the
> regulatory approach to auditor independence outside the United States as
> well.
> * The SEC proposal is bad news for CPAs working in industry, since it
> would restrict public companies' freedom of choice when seeking outside
> professional services. The SEC would force public companies to constantly
> choose whether to hire a firm solely as its auditor or solely as a
> provider of other services. In fact, under the proposed new rules, a
> public company might be compelled to dismiss an audit firm that has done
> consistently outstanding work in order to obtain services from the
> auditor's non-audit colleagues.
> * The SEC claims its proposed rule "would not affect tax-related
> services" to audit clients. However, it would ban acting as an advocate
> for an audit client, or providing expert services in administrative
> proceedings, thus (except in preparing returns) potentially prohibiting
> CPAs from representing audit clients before the IRS.
> * The proposed rule would impute to an accounting firm the activities
> of virtually any entity with which the accounting firm has a commercially
> valuable business relationship by viewing such an entity as an "affiliate
> of the accounting firm."
> * Accounting firms effectively would be precluded from entering into
> almost any joint venture or partnership, since the accounting firm's
> independence could be impaired as a result of the activities of other
> parties in which it may have only an immaterial investment, or with which
> it may be associated in only limited respects, but does not control.
> * Regional alliances or cooperative agreements between accounting
> firms could result in each firm being required to be independent of each
> other firm's attest clients. Moreover, the restrictions would extend to
> any alliance or cooperative agreement with overseas accounting and other
> firms (such as legal service providers).
> * In a rush to regulate, the SEC has:
> * Adopted a schedule designed to avoid Congressional oversight and
> preclude meaningful public participation.
> * Waited until the eleventh hour of the Clinton Administration to push
> through a radical rule to restructure the accounting profession, without
> permitting informed oversight, or policy participation, by Congress or the
> new Administration. In each of the last 10 annual reports to Congress, the
> SEC has not mentioned any concerns about the scope of services issue.
> * Limited to 75 days the period for commenting on a far-reaching and
> highly complex proposal, including responding to more than 400 questions,
> collecting and analyzing a great deal of data and considering alternative
> concepts for regulating auditor independence.
> * Pre-empted the work of the ISB, set up three years ago at the
> initiative of the SEC to develop a new conceptual framework for auditor
> independence and appropriate implementing standards.
> * Not allowed time for important recent reforms to work, including new
> disclosure and audit committee requirements adopted by the ISB, the NYSE,
> the NASD, the American Stock Exchange and the SEC.
> * The SEC has needlessly tied its popular and long-overdue
> modernization of family disqualification rules-depression-era rules that
> discriminate against working women and two-career families-to its far more
> controversial scope of services initiative. Modernization of the
> financial-interest standards can and should occur on an expedited basis,
> independent of the scope of services initiative. The scope of services
> initiative requires more time for fact finding and analysis than provided
> by the SEC's time frame.
> * If the rule is adopted, there will be a negative effect on
> recruiting and retention of the best talent. The best audit professionals
> will not want to be at a firm where 25% - 40% of the market is
> "off-limits," and the same is true for the best non-audit professionals.
> Similarly, the best and brightest students will not be drawn to firms with
> a limit on upward opportunities. The "audit-only" firms endorsed by the
> proposal will have difficulty attracting the necessary talent both from
> accounting programs and from information technology programs, because the
> best talent will be drawn toward industries with broader career
> opportunities.
> * The SEC lacks authority for its sweeping scope of services rule. The
> statutory provisions cited by the SEC in the proposed rule pertain to
> public companies' filing of financial statements that have been audited by
> independent accountants and do not expressly authorize the SEC to make
> rules governing or regulating directly the accounting profession itself.
> The proposed rule is based primarily, if not entirely, on alleged concerns
> relating to the "appearance of independence" - but not independence in
> fact. The SEC does not have statutory authority to impose restrictions
> because of possible perceptions about independence.
> * Broad restrictions on non-audit services will likely have the
> perverse effect of undermining auditor independence by making audit firms
> overly or exclusively dependent on auditing fees, which would certainly be
> contrary to the public interest. Such restrictions will also harm the
> recruitment and retention of the most qualified personnel, causing a
> possible degradation in audit quality.
> * In conclusion, the SEC's proposal to restrict the services offered
> by accounting firms represents a fundamental restructuring of a profession
> that has successfully given investors the reliable, independent data they
> need for the past century. A decision by a government agency to tell some
> business organizations what services they may offer and to tell other
> businesses from whom they can buy services is an extraordinary economic
> intervention without any empirical or other basis. We think most Americans
> would find this a curious public policy position for their government to
> take.
> * This scope of services rule must not be allowed to go forward.
>
>
Author: "Tiffany Chapa" at Internet
Date: 09/21/2000 3:25 PM
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TO: RULE-COMMENTS at 03SEC
Subject: File No. 57-13-00 will cripple the accounting profession
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On behalf of the Burdette Smith Group, CPAs, I am writing to oppose the rule
revising the Auditor Independence Requirements of the Securities and Exchange
Commission (the SEC). We feel that the proposed rule is unnecessary and will
harm our firm as well as the accounting profession as a whole for the reasons
outlined below.
We believe that providing a full scope of services does not compromise auditor
independence, and therefore does not cause compelling public harm. The SEC
decision to regulate the non-audit services of accounting firms is not based on
proven facts. The SEC has produced no empirical evidence that the non-audit
services have compromised audit quality or auditor independence nor ever caused
an audit failure. None of the studies cited by the SEC has shown conclusively
that the scope of services impaired audit effectiveness. Therefore an
exclusionary ban is unnecessary.
Further, the Panel on Audit Effectiveness of the Public Oversight Board, which
was formed at the request of the SEC, recently concluded, "both the profession
and the quality of audits are fundamentally sound." The panel also stated that
it could find no evidence supporting the theory that the provision of non-audit
services has hurt audit quality. Instead the panel concluded that in numerous
instances non-audit services have contributed to a more effective audit.
There is no evidence of the investing public being harmed by the lack of
restrictions on non-audit services. These proposed restrictions will likely
harm investors in that auditor independence will be undermined in two critical
ways: (1) auditors will be overly dependent on audit fees because of
restrictions on other activities; and (2) restrictions on non-audit activities
will make it more difficult for CPA firms to hire and retain the most qualified
personnel, causing a degradation in audit quality. The proposed rule does not
address a compelling public harm and, in fact, may create conditions of impaired
auditor independence that the rulemaking was designed to prevent.
Also, we object to the fact that despite the lack of evidence of non-audit
activities endangering auditor independence the SEC has:
-Adopted a schedule designed to preclude meaningful public participation and to
avoid congressional oversight.
-Limited to 75 days the period for public comment on a far-reaching and highly
complex proposal, including responding to more than 400 questions, collecting
and analyzing a great deal of data and considering alternative concepts for
regulating auditor independence.
-Waited until the final months of the Clinton Administration to propose a
radical rule to restrict the services of the accounting profession without
permitting informed oversight by Congress.
-Pre-empted the work of the Independence Standards Board set up three years ago
by the SEC to develop a new conceptual framework for auditor independence and
appropriate implementing standards.
-Refused to allow important recent reforms to work including new disclosure and
audit committee requirements adopted by the New York Stock Exchange, the
National Association of Securities Dealers, the American Stock Exchange, and the
SEC.
Such far-reaching change to the accounting profession deserves time for public
participation and appropriate comment.
Our biggest concern is that the proposed SEC rulemaking will ripple throughout
the country impacting virtually every accounting firm. There is a very strong
likelihood that the proposed rules will set a precedent for other regulators.
The proposed rulemaking would be viewed as a model by state boards of
accountancy, as well as federal (e.g. banking, IRS, and ERISA) and other
regulators.
The SEC's proposed rulemaking creates an adverse precedent by restricting
competition and the freedom of choice available to public companies. The SEC
proposal would reduce the options a public company could select when seeking
outside professional services. Despite a lack of evidence that such services
impact independence a public company could be forced to accept lesser quality
work in order to retain an accounting firm for a given type of service.
Auditors who perform consulting services for their clients are able to provide
the highest quality of service in an efficient manner.
Finally, we believe that the SEC lacks authority for its sweeping scope of
services rule. The statutory authority cited by the SEC pertains to the filing
of financial statements that have been audited by independent public accounts
and does not expressly authorize the SEC to make rules directly regulating the
accounting profession itself. The proposed rule is designed to address alleged
concerns relating to the "appearance of independence" - but not independence in
fact.
The perceptions of the SEC that auditor independence has been impaired do not
create the statutory authority to impose a sweeping change in the nature of
services provided by accounting firms.
To conclude, we think that the SEC's proposed rulemaking to restrict the
services offered by accounting firms is fundamentally flawed. Such a sweeping
change to a profession that has demonstrated a commitment to the public interest
without adequate time for debate and consideration by both impacted parties and
the Congress should be withdrawn.
Sincerely yours,
Tiffany Chapa
Staff Accountant, The Burdette Smith Group
Author: at Internet
Date: 09/21/2000 10:34 AM
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TO: RULE-COMMENTS at 03SEC
Subject: Reference File No. S7-13-00
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JAMES E. COLLIER, CPA
37 Morningside Ct.
New Whiteland, IN 46184
(317) 535-9019
September 21, 2000
Sent via E-mail to: rule-comments @sec.gov
Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, N. W.
Washington, D. C. 20549-0609
SUBJECT: Reference File No:
S7-13-00
Mr. Katz:
I am a CPA, licensed to practice in Indiana. I am writing in response to the
Revision of the Commission's Auditor Independence Requirements.
I provide audit services to non-publicly traded clients. As I understand it,
the above mentioned proposal would prohibit me from performing most non-audit
services to those clients. I oppose this scope of services proposal.
The decision to move forward with the scope of services rule was made without
facts or evidence. As I understand it, the SEC has admitted that there is no
direct, observed evidential matter to support the assertion that audit
quality or auditor independence has been compromised. Nor has any empirical
evidence been presented to support the notion that an audit failure was
caused by the ability to provide non-audit services to audit clients. In my
case, providing such services has contributed to a greater understanding of
the client, resulting in a more effective audit.
While I do not audit SEC clients, the proposed scope of services rule would
most likely set a precedent for other regulators. The proposed rule, as
always, would be viewed as the new model by state boards of accountancy, as
well as other federal regulators.
I have no objection to the modernization of family disqualification rules. I
feel that they were needlessly tied to the scope of services proposal.
Sincerely,
James E. Collier, CPA
Author: "Sharise Engel" at Internet
Date: 09/21/2000 12:36 PM
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TO: RULE-COMMENTS at 03SEC
Subject: Comments regarding CPA and SEC work
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September 21, 2000
RE: Reference file No.: S7-13-00
Dear Sir or Madam:
This letter is to address the proposed regulation which would prohibit audit
clients from performing non-audit services. I am an inactive Nebraska and
Florida CPA working in industry. I believe that improvement is needed within the
CPA profession, but I do not see where limiting the client's ability to receive
business growth assistance from their CPA firm will achieve that goal.
Rather than drawing up detailed new rules for a rapidly changing future, we
should first get the basics right. The value added services by CPA's have seemed
to improve the quality received from our CPA firm. I believe that lowering the
overall pool of talent in the CPA firm may limit the quality of business
services given. The industry does not understand why the SEC is concerned in
limiting their choices of services provided.
I urge you to reconsider this rule proposal, to extend the comment period on the
rule proposal, and to inform yourselves about the real impact of your rule
proposal on accountants and their clients all across this country. Many
accountants do not have large SEC practices and could be severely hurt by this
proposed regulation.
I believe the CPA profession takes the existing independence rules quite
seriously and consequently abide by all existing rules. We are professionals
that follow our code of ethics and practice by the highest moral values. A CPA
with the ethics and professional integrity to practice would not be influenced
by their own personal financial well being versus their professional ethics.
Through its Quality Control Inquiry Committee, the AICPA is committed to a
self-regulatory program that focuses on protecting the public interest in
reliable financial information and enhancing the credibility of financial
reporting through the audit. Without question our self-regulatory system has
been an integral part of the best and strongest financial reporting system in
the world. The profession understands that the public's trust is hard-earned and
easily lost.
Please stop this rule proposal. Thank you for your time and attention to this
matter.
Sincerely yours,
Sharise M. Engel
Tax Manager
Author: "Keith Ferguson" at Internet
Date: 09/21/2000 8:44 AM
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TO: RULE-COMMENTS at 03SEC
TO: at Internet
Subject: Reference file No.: S7-13-00
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Reference file No.: S7-13-00
To whom it may concern,
I'm writing in protest to the proposed SEC rule prohibiting non-audit services
to CPA firm's attest clients. My firm serves smaller SEC registrants that
require a great deal of attention and support to comply with SEC reporting
rules. The rule proposed by the SEC will effectively eliminate our ability to
provide this service, which benefits the SEC, the client and the investing
public.
The SEC has proposed these new rules with no known evidence to support its
presumption that the prohibited services compromise independence. This proposal
also makes it likely that even the largest audit firms will not be able to
retain the specialist non-CPA experts that are necessary in today's technology
driven environment to perform quality audits of large and small enterprises.
Small registrants cannot afford to hire the expertise necessary to comply with
the many regulations promulgated by the SEC and other regulators. They rely on
their CPA firms to perform not only the audit function but also advise them on
the many systems, controls and policies they must follow in order to be
successful in business and comply with the regulations. The SEC proposal
restricts public companies' freedom of choice when seeking outside professional
services.
It will be next to impossible for these enterprises to segregate their single
CPA firm relationship into multiple relationships in order to comply with the
new independence rules. CPA's will refuse to provide audit services or require
excessive fee increases due to the inefficiencies imposed by these regulations.
Most CPA firms below the Big Five in sizes will stop serving SEC registrants,
further restricting the access of smaller companies to reasonably priced audit
services.
In the attempt to produce theoretical purity the result will be reduced quality
of audits, limited access to auditing services and hurt the investing public
that the SEC is supposed to protect.
Sincerely,
Keith Ferguson
Keith Ferguson, CISA
Moss Adams LLP
(509) 777-0126
1-800-888-4065
Author: "Johnson; Craig" at Internet
Date: 09/21/2000 8:12 AM
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TO: RULE-COMMENTS at 03SEC
Subject: File #S7-13-00
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I would like to express my deep concern regarding the proposed rule changes
initiated by the Securities and Exchange Commission (SEC).
If the rule is approved as currently proposed, accounting firms performing
audits for SEC registrants, and perhaps non-public clients, might ultimately
be prohibited from providing any audit client with most non-audit services.
This restructuring of the accounting profession would seriously impair our
firms ability to perform services to our current clients, and will severely
limit our future clients. I feel this proposal has far reaching
implications, with profound consequences for the future of the accounting
profession and would adversely affect all accounting firms and companies,
public and private.
The SEC has decided to move forward with this proposal without any evidence
or facts that non-audit services have compromised audit quality or auditor
independence, nor ever caused an audit failure. The Panel on Audit
Effectiveness of the Public Oversight Board, formed at the request of the
SEC, concluded that both the profession and the quality of audits are
fundamentally sound. The panel could find no evidence of non-audit services
hurting audit quality. The panel in fact concluded that in most cases,
non-audit services contributed to a more effective audit. Placing these
restrictions on audit clients and CPAs could have an adverse effect on the
quality of an audit.
For CPAs working in industry, this is not good news because it would
restrict public companies' freedom of choice when seeking outside
professional services. This proposal would force public companies to
choose a firm solely for its auditing abilities or as a provider of other
services. Also, public companies would be compelled to dismiss an audit
firm that has done consistently outstanding work in order to obtain services
from the auditor's non-audit colleagues.
Even though the proposal "would not affect tax-related services" to audit
clients, it would ban acting as an advocate for an audit client, or
providing expert services in
administrative proceedings, thus potentially prohibiting CPAs from
representing audit clients before the IRS.
The most dangerous aspect of this proposal is this rule would set a
precedent for other regulators to follow. This new rule would be the model
on state boards of accountancy as well as federal (e.g., banking and ERISA)
and other regulators. This could also influence the regulatory approach to
auditor independence outside the United States.
There would be a negative effect on recruiting and retaining top
professionals. The best and brightest students will not be drawn to a firm
with limited opportunities. This fact alone will seriously impair the
growth of the overall accounting profession. Students realizing the
limitations could possibly seek other industries with broader career
opportunities.
Ahlbeck & Company, a well-established accounting firm continues to broaden
our client base in the Chicago area and beyond as we focus on responding to
the needs of our clients. Our clients vary in size from sole entrepreneurs
to large corporations, and our industry base ranges from non-profits and
tax-exempt organizations to wholesalers, retailers and professional service
firms. This proposal would seriously handicap the services we currently
offer our clients, and in effect, would do considerable damage to our
current client base. We pride ourselves on the variety of services we offer
our clients and we are dedicated to provide exceptional personalized client
service in response to their individual needs.
We have dedicated a great deal of time and effort in attracting and
retaining top employees in the accounting field. This proposal would cause
some of our best employees to seek employment elsewhere if they are
restricted in services we provide.
Thank you for the opportunity to share my concerns.
Very truly yours,
* Craig
*
*
* AHLBECK & COMPANY
*
* CERTIFIED 1665 ELK BOULEVARD TEL: 847/824-4000
* PUBLIC DES PLAINES, ILLINOIS EXT: 24
* ACCOUNTANTS 60016-4798 FAX: 847/824-4012
*
* E-MAIL: WEB:
* craig@ahlbeckco.com www.ahlbeckco.com
*
* CRAIG D. JOHNSON
*
Author: Pat Kilwein at Internet
Date: 09/21/2000 5:18 PM
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TO: RULE-COMMENTS at 03SEC
CC: "'fedleg@aicpa.org'" at Internet
Subject: Reference File No. S7-13-00
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I am writing in response to Proposed Federal Regulation governing auditor
independence. I am the audit manager for a local CPA firm Coradino Hickey
and Hanson, A CPA Corporation, consisting of approximately twelve CPA's.
Our practice and our clients interests would be impacted negatively if the
proposed rule governing audit independence were to be enacted.
In our role as business advisors to our clients, we perform audit services
but also provide a whole realm of related accounting services. If we were to
be restricted to only providing audit services, which would then preclude us
from performing other accounting related professional services, our practice
as it currently exists would not be able to continue. This would negatively
impact my personal career as an audit manager who also provides a wide range
of professional services, and my clients who currently benefit from my
ability to provide them with audit services as well as business advisory
services would also suffer.
As a member of a small firm ( or a large local firm depending on how you look
at it) who services non-public entities which are business that are
closely-held and tend to be small to medium sized businesses with revenues
typically from $1 Million to as much as $200 Million, my ability to serve
these clients would be severely limited under the proposed regulations. In
turn, the businesses which I perform audit and business advisory services
would also be impacted negatively, since I could no longer provide them with
the services they seek and need in order to stay in business operating
profitably and efficiently, and be able to compete with other businesses.
Even though the regulations are proposed to only apply to SEC registrants,
its impact on the CPA profession and the public opinion would definitely
impact me and my firm. The limitation on performing non-audit services to
clients and the perceptions about independence would truly have a negative
impact to me, my firm, my clients, and in general the public.
Therefore, please recognize that I urge you to not adopt the proposed rule
governing Auditor Independence. Thank you for your attention to this very
important matter.
CORADINO HICKEY AND HANSON, A CPA CORPORATION
PATRICK A. KILWEIN, CPA
Author: at Internet
Date: 09/21/2000 9:18 AM
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TO: RULE-COMMENTS at 03SEC
Subject: REF file no. S7-13-00
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As a practicing CPA, for over 30 years, I am generally not prone to write
comments to governing bodies. I have been active, however, in the Indiana CPA
society and briefly in the AICPA. I believe that the limitation of scope of
business services, contemplated by your committee is well beyond the
responsibilities assigned to the SEC when given the charge to oversee "public
firm financial reporting." It is not in your best interests to pursue this
limiting of scope of service, nor is it in the best interest of my colleages.
Thank you for this consideration.
Richard K. Leighton
Author: at Internet
Date: 09/21/2000 8:17 PM
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TO: RULE-COMMENTS at 03SEC
CC: fedleg@aicpa.org at Internet
Subject: file no. S7-13-00
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To Whom It May Concern:
This letter is in response to the recent proposed ruling regarding audit
independence.
Comment Period
First let me say that the impact of this ruling would be widespread with
major implications. Because of this, the comment period is too short and
should be extended before making a final ruling.
Be Realistic and Be Careful What You Create
You are probably reading hundreds of letters covering agreed upon points to
discuss-- all of which are valid. But I want to cut to the chase and relay
my thoughts on this matter based on my personal experience from operating in
the real world in which we as accountants must practice.
I have worked on SEC clients while a manager with a big five firm and now as
a partner in a smaller firm environment. I can tell you without exception
that the more services we provide for a client the better we understand their
operations, reporting process and risks. (For example: While with my previous
firm, we performed the audit for a $1billion multi industry company. I have
never felt more comfortable with an audit opinion then the year we also
performed the clients internal audit function one year. You are telling me
this is an independence impairment when I am telling you without a doubt that
as a financial statement user, you can feel better about the quality of the
statements that year then any other year) Be realistic-the more we are in a
clients operations the more likely we are to detect reporting issues. I know
as a practitioner when a service may be crossing the independence line and we
will always seek guidance from the AICPA and/or SEC in those circumstances.
But 99 out of 100 times the service we provide will compliment and improve
our audit.
If you force clients to use multiple accounting firms to accomplish their
reporting and internal control goals, you are creating a dangerous situation.
Make no mistake about it; if management now has multiple firms with intimate
knowledge of their business, they will quickly use this to their advantage
pitting firms against each other. This will make it easy for management to
shop opinions and audit fees and entice accounting firms to use audit issues
to convince management to switch firms which will result in a steady decline
in the integrity of financial reporting
With audit fees already low and being pushed lower for the reasons discussed
in the previous paragraph, the better firms will abandon the audit practice
to pursue more profitable practice lines with no restrictive regulatory
issues. What will be left to issue SEC audits will be low-cost bottom
feeders that lack the ability and desire to issue quality financial
information. If you don't believe it, look no further then HUD to see what
happens when the profitability is taken out of the industry for accounting
firms.
Conclusion
I agree that there are firms--particularly larger firms-- that are pushing
the envelope on independence. I also believe this is the exception rather
then a normal practice. But making a blanket ruling to prevent a few
questionable situations is an overreaction that would be more detrimental
than good to SEC filers and their accountants. More importantly, I believe
the integrity of the profession would be challenged resulting in a serious
decrease in the quality and consistency in financial reporting. The answer
is stricter enforcement against firms violating independence rules and more
guidance and regulations regarding what is and is not permissible.
Thank you for your consideration.
P. Jason Ricciardi
Maggart & Associates, P.C.
150 4th Avenue North
Suite 2150
Nashville, TN 37219
Author: Seth Richard at Internet
Date: 09/21/2000 12:30 PM
Normal
TO: RULE-COMMENTS at 03SEC
Subject: File No. S7-13-00
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I am submitting my comments as a personal, private investor in several
stocks and mutual funds. There is no doubt in my mind that accounting
and auditing services must be kept entirely separate to maintain the
integrity of audits. There exists an inherent and profound conflict of
interest in an auditor also acting as a consultant in any way to the
entity he is auditing. It is therefore not reasonable or realistic to
allow such a relationship and expect imartial results. Auditing and
consulting must not be allowed to come from the same source.
Seth Richard
Boston, MA
Author: "Roesener; Derek" at Internet
Date: 09/21/2000 10:48 AM
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Receipt Requested
TO: RULE-COMMENTS at 03SEC
Subject: File Number S7-13-00
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Messrs. Arthur Levitt, Paul R. Casey, Isaac C. Hunt Jr. and Ms. Laura S.
Unger:
I am writing to express my strong disagreement with the proposal to limit
the provision of non-audit services by the independent audit firm. I
strongly believe that adoption of such an extreme rule is both unwarranted
and overreaching and would also cause severe disruption to the entire
business community if adopted.
First, I understand the concern that the SEC has with regard to ensuring
that the provision of non-audit services does not interfere with or impact
the independence of the audit function. Preserving the independence of the
audit function is necessary to protect the integrity of a company's
financial statements. Contrary to your claims that the proposed rules would
not severely restrict accounting firms from providing non-audit services to
audit clients, the proposed rules would have such an effect.
I believe that implementation of the proposed rules is both unwarranted and
far overreaching. First, I am not aware of any objective studies or evidence
to suggest that provision of non-audit services by accounting firms to
non-audit clients has caused any impairment of independence in audits. The
suggestion that the provision of certain types of services necessarily
impairs the actual or perceived independence of the audit firm is wholly
without merit. Audit firms take their responsibility to provide an
independent audit opinion very seriously and fully recognise the potential
risks of failing to do so. Furthermore, the fact that the enforcement
division has never brought forward a case alleging such an audit failure is
also inconsistent with the stated purpose for the rules. In absence of any
such objective evidence to support the purpose for the proposed rules, how
can the SEC objectively determine how to 'correct' the 'problem' without
going too far?
The role and function of the audit committee of the Board of Directors of
SEC companies is to engage and direct the activities of the audit firm.
Audit Committees routinely request detailed information on the types of
services provided by and amounts of fees paid to the audit firm. If the
Audit Committee perceives that the independence of the audit firm is
impaired for any reason, it is their duty to the shareholders to ensure that
the impairment is corrected or engage another audit firm. To impose a
blanket rule prohibiting the provision of certain types of services by audit
firms negates the ability of the audit committee to perform its duties.
To restrict a company from engaging the firm that is best able to provide
the necessary services will most certainly adversely affect its business
operations. In today's fast-moving global business environment, companies
need the best available resources at their disposal to succeed. Why should
a company be arbitrarily restricted from engaging a firm that has the most
knowledge of its global operations from providing non-audit services?
Certainly the 'cost' of such a restriction to all SEC companies would
greatly exceed the 'benefit' of a perceived increase in auditor
independence, if any. Has such a cost/benefit analysis been completed or
even comtemplated to support these proposed rules?
The impact of these rules on the accounting profession and ultimately to the
economy would be devastating. Implementation of these rules will force
individual CPAs and accounting firms to choose to be a strict 'auditor' or a
value-added business advisor. Such a split will most certainly result in
the 'dumbing-down' of the auditor due to lack of other business advising
experience which enhances their audit ability.
Finally, I would like to propose a few questions, the answers to which
should also highlight the lack of clear purpose and the impossibility to
implement and police the proposed rules.
1. Why restrict an accounting firm from providing only certain types of
non-audit services to audit clients and not restrict the amount of non-audit
fees an accounting firm can receive from audit clients? While I am not
proposing such a rule, certainly logic would dictate that it would be the
amount of non-audit revenue received from an audit client rather than the
specific services generating that revenue that could impair the independence
of the auditor.
2. Does any other regulatory body in the world have such a rule? I am not
aware of any.
3. Do the proposed rules apply to the provision of non-audit services by
the audit firm outside the U.S.? If so, then forcing a company to build
relationships with multiple firms in every country in which it operates is
unduly burdensome and impossible to police.
4. Who has ultimatee authority at a company to decide which firm to engage
for which services - the Audit Committee or the managers of the company? If
the Audit Committee chooses Firm A as the audit firm, can the managers be
restricted from engaging Firm A in non-audit services? If so, is that in
the best interest of the company and its shareholders? If the managers of
the firm engage Firm B for non-audit services, is the Audit Committee then
restricted from considering Firm B as the audit firm? Is that lack of
choice in the best interest of the shareholders???
In conclusion, I think that without any credible or objective evidence to
suggest that any actual impairments of audits have resulted from the
provision of certain types of non-audit services, the proposed rules are
wholly without merit or benefit. I appreciate your consideration of these
comments.
Sincerely,
Derek B. Roesener, CPA
Delco Remy International
Derek B. Roesener
Manager, International Tax
765-778-6674
Author: at Internet
Date: 09/21/2000 2:37 PM
Normal
TO: RULE-COMMENTS at 03SEC
Subject: Reference File No. S7-13-00, Proposed Rule Governing Audit I
------------------------------- Message Contents
The SEC is currently proposing a scope of services rule that would severely
and unnecessarily restrict public accounting firms. The proposed rule says
that if a firm performs an audit for a public company, it cannot perform any
non-audit services for that company. Those non-audit services include the
tax, information and management consulting which virtually all public
accounting firms currently perform for its clients.
While my practice currently consists of only closely held businesses and we
do no audits, I am concerned about the trickle down effect of this proposed
rule. A precedent could very well be set for other regulators who do impact
my business.
A number of points need to be considered by the SEC:
· The SEC admits that there is no empirical evidence that non-audit
services have compromised audit quality or audit independence.
· The SEC has ignored the conclusion of the Panel on Audit Effectiveness of
the Public Oversight Board, a panel formed at the request of the SEC. The
panel said that the public accounting profession and the quality of its
audits were fundamentally sound. It also concluded that in numerous instances
non-audit services actually contributed to a more effective audit.
· The proposed rule could actually hurt audit quality by depriving the
audit firm of vital technological expertise and a potentially rich source of
information about the client.
· Recruiting and retaining the best talent will become difficult for public
accounting firms. The "audit only" firms endorsed by the proposal will have
difficulty attracting the necessary talent both from accounting programs and
from information technology programs, because the best talent will be drawn
toward industries with broader career opportunities. That would certainly
have a negative effect on audit quality.
· Making audit firms overly or exclusively dependent on auditing fees could
actually undermine auditor independence. That would certainly be contrary to
the public interest.
· The SEC's proposal to restrict the services offered by accounting firms
represents unnecessary government intervention. Government agencies should
not be telling some business organizations what services they may offer,
while telling other businesses with whom they may do business.
The SEC lacks the authority for the scope of services rule. The statutory
provisions cited in the proposed rule pertain to public companies' filing of
financial statements that have been audited by independent accountants and do
not expressly authorize the SEC to make rules governing or regulating directly
the accounting profession itself, but rather pertain to the requirements for
public companies' financial statements. Sections of the federal securities
laws that permit the SEC to define "accounting, technical and trade" terms
also do not grant such authority.
It appears that the SEC is trying to rush through this regulation. The
following points illustrate this:
· The schedule seems designed to avoid Congressional oversight and preclude
meaningful public participation.
· The SEC has not mentioned any concerns about the scope of services issue
in each of the last 10 annual reports to Congress, yet in the eleventh hour
of the Clinton Administration, they are attempting to push through a radical
rule to restructure the accounting profession.
· Limited the comment period to 75 days for a very complex and far-reaching
proposal.
The accounting profession has successfully given investors the reliable,
independent data they need for the past century. This is a classic example of
"If it isn't broke, don't fix it".
This scope of services rule must not be allowed to go forward.
Very truly yours,
TEMCHUK & COMPANY, LTD.
Martin A. Temchuk, C.P.A.
http://www.sec.gov/rules/proposed/s71300/0921b01.htm
