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: =?Windows-1252?Q?Benito_Arru=F1ada?= at Internet
Date: 09/12/2000 2:31 PM
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TO: RULE-COMMENTS at 03SEC
CC: "arrunada" at Internet
Subject: File no. S7-13-00
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LETTER ALSO SENT BY AIRMAIL, WITH ENCLOSURES, ON SEPT 12TH 2000
_________________________________________________________________
Barcelona, September 12, 2000
Mr. Jonathan G. Katz
Secretary
Securities and Exchange Commission
450 5th Street, N. W.
Washington, D.C. 20549-0609
Re: Revision of the Commission's Independence Requirements SEC File No.
S7-13-00
Dear Mr. Katz:
As a professor of business organization, I have conducted empirical,
problem-driven research, and have studied many of the issues implicated by
the SEC's rule proposal regarding auditor independence. Based on this
research, I consider that non-audit services produce many benefits that the
SEC proposal overlooks or underestimates, including not only economies of
scope but also improved competition.
This is a brief summary of the normative conclusions reached in this
research:
1. My book The Economics of Audit Quality: Private Incentives and the
Regulation of Audit and Non-Audit Services (Kluwer Academic Publishers:
Boston, 1999) focuses on market mechanisms which protect audit quality. By
providing a better understanding of these market mechanisms, it helps in
defining the content of rules and the function of regulatory bodies in
facilitating and strengthening the protective operation of the market
(chapters 1-3).
The conclusion with regard to non-audit services is that their provision
generates beneficial effects in terms of costs, technical competence,
professional judgment and competition and, moreover, need not prejudice
auditor independence or the quality of these services (chapters 4-7).
This assessment leads, in the normative sphere, to recommending a
legislative policy aimed at facilitating the development and use of
safeguards provided by the free action of market forces (chapter 8).
Regulation should thus aim to enable the parties-audit firms,
self-regulatory bodies and audit clients-to discover through competitive
market interaction both the most efficient mix of services and the
corresponding quality safeguards, adjusting for the costs and benefits of
each possibility.
2. Pursuing this line, my article "The Provision of Non-Audit Services by
Auditors: Let the Market Evolve and Decide" (The International Review of Law
and Economics, vol. 19, no. 4, December, 1999, 513-31) searches for and
defines efficient regulation of the provision of non-audit services by
auditors to their audit clients. Particular emphasis is placed on the role
of fee income diversification and the enhancement, through disclosure rules,
of market incentives to diversify. A rule of mandatory disclosure of client
diversification is examined in order to facilitate the task of the market
with regard to achieving the optimal degree of auditor independence.
3. The article "Audit Quality: Attributes, Private Safeguards and the Role
of Regulation" (The European Accounting Review, vol. 9, no. 2, 2000,
205-224) examines the private mechanisms used to safeguard quality in
auditing, with a view to defining rules capable of facilitating the
performance of market forces. An outline is given of a general theory of
private quality assurance in auditing, based on the use of quasi-rents to
self-enforce quality dimensions. Particular attention is also paid here to
the role of fee income diversification as the key ingredient of private
incentives for audit quality. The role of public regulation is then
situated in the context defined by the presence of these safeguard
mechanisms. This helps in defining the optimal content of rules and the
function of regulatory bodies in facilitating and strengthening the
protective operation of the market. By making sense of the interaction
between regulation, quality attributes and private safeguards, the analysis
helps to evaluate the relative merits of different regulatory options.
I am attaching copies of these works. If you have any questions or comments
regarding the above please do not hesitate to contact me.
Very truly yours,
Benito Arruņada
Professor of Business Organization
Tel (+34) 935 422 572 Fax (+34) 935 421 746
Adm. Asst.: Anna ALSINA anna.alsina@ajau.upf.es Tel (+34) 935 422 714
For more information and full texts of some of the publications mentioned in
the letter, see "Auditing Sector" in http://www.econ.upf.es/~arrunada
Author: "Scott Blair" at Internet
Date: 09/12/2000 12:58 PM
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Subject: File No. S7-13-00
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I am responding to the question of seperating auditing services from
non-auditing services. I am an individual investor, in both mutual funds and
stocks. I am concerned about one organization providing auditing services,
which may be compromised by the opportunity to provide more lucretive consulting
services. While there may not be a true conflict, there is certainly a
perception of one, and that the auditors comments may be compromised or worded
less aggressively, so as not to harm a potential consulting agreement from
another part of the country. This is similar to a legislator having an interest
in the company which is bidding for a contract under that legislator's
jurisdiction. I would strongly discourage continuation of the status quo,
without some modification, to protect both individual and institutional
investors.
Scott C. Blair, MD
Columbus, OH
Author: "Rodney Caldwell" at Internet
Date: 09/12/2000 4:14 PM
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TO: RULE-COMMENTS at 03SEC
Subject: File No. 57-13--00
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I support the SEC's efforts to assure independence and objectivity in audits. As
a professional engaged in provision of expert testimony in court cases I know it
is important to avoid even the appearance of impropriety. An auditor who also
provides consulting to the same company certainly presents the appearance of
impropriety. How can a truly independent audit be done if an adverse finding
could jeopardize current or future consulting contracts.
Thank you for considering my opinion.
Rodney E. Caldwell, Ph.D.
Author: "Sean Callahan" at Internet
Date: 09/12/2000 6:42 AM
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TO: RULE-COMMENTS at 03SEC
Subject: Conflict of interest regarding auditing services
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I am a CPA licensed to practice in the state of Arizona. I do believe that a
auditor's independence is effected by the pressure a firm has to "sell"
additional services under its consulting wing. How can someone have the courage
to do the right thing (insisting a transaction be recorded a certain way) when
his client will be dangling a golden carrot above his head for some lucrative
consulting services. It just does not make sense if you think about. I am not
saying that auditor do not have ethics, but how can his/her independence not be
effected.
Sincerely,
Sean M. Callahan, CPA
Lic #: 7420-E
Author: "Carlson; Rick" at Internet
Date: 09/12/2000 2:22 PM
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TO: RULE-COMMENTS at 03SEC
Subject: RE: File No. S7-13-00 re: Auditor Independence
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Sirs: I believe the SEC's initiative re: the subject of Auditor
Independence, File No. S7-13-00, is absolutely the right
thing to do at this time (and probably was warranted some time ago).
The
potential conflict within accounting firms, which
might affect the independence of their clients' audits due to the
lucrative
consulting fees from those same clients, is a real
possibility even if it's one that's difficult to prove. In my mind, the
fact that the "door is open" is the only revelant fact; the
question of whether someone will walk through the door is really only a
questiion of who and when, not if it'll happen. A
professor teaching accounting in an MBA course I took in the early-80's
was
already on top of this issue. He instructed
everyone in the class who was a shareholder of any public company to
vote
"No" on their proxy cards for the recurrent
question of retaining the company's present auditing firm. He felt that
the
accounting firms and their clients tend to get way
too cozy after years of working together and that the shareholders
should
express their concern about this issue of true
independence. Anyway, to make a long story short - keep up the fight!!
- Rick Carlson
<> <>
Author: "J Copeland" at Internet
Date: 09/12/2000 1:52 PM
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Subject: Re: SEC Proposed Rule Governing Audit Independence Re: File
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My name and address:
J. D. Copeland, CPA
216 Opal
Hewitt, TX 76643
>
>
> I am a CPA with a small local solo practice located in Hewitt, TX . In
addition
> to the typical services offered by CPA firms, I offer consulting and
financial
> services as well. My concerns with the subject rule include the
following:
>
> There is already an entity that is established to address the issue
raised
> by the SEC in its proposed rule--the Independence Standards
Board.
> I do not see why SEC's proposed rule should be issued before
> the Independence Standards Board has a chance to do its job.
>
> In any event, the Proposed Rule's comment period is too brief to allow
for
> thoughtful response by interested parties. At a minimum, the
comment
> period should be lengthened.
>
> From a personal standpoint, it seems likely that the SEC's proposed
rule
> will
> have a trickle-down effect and adversely impact my practice.
Given
> that
> state boards have a way of following the federal government's
rules,
> this
> result will probably occur regardless of whom the SEC is
targetting
> with
> this rule.
>
> When I added financial services to my practice, I did so with the clear
thought
> in mind that my independence must not be impaired. I feel I have
successfully
> avoided possible conflicts of interest and maintained the professional
integrity
> of my firm. I do not see how the SEC's proposed rule will add any value
to its
> role.
>
> Thanks,
>
> J. D.
>
Author: "Farrales; Aileen" at Internet
Date: 09/12/2000 10:02 AM
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TO: RULE-COMMENTS at 03SEC
CC: "Caneva; Dan" at Internet
CC: "Chavez-Rey; Anna Marie" at Internet
Subject: Electronic Filing by Investment Advisers; Proposed Amendment
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To Whom It May Concern:
can you give an estimated time as to when we can expect the adoption of the
proposed rule regarding the Form ADV? According to the SEC website this
rule is still in its proposal stage. Please advise.
V. Aileen Farrales, Transamerica
Author: Robert Fuentes at Internet
Date: 09/12/2000 1:05 PM
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Subject: File No. S7-13-00
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There should not be a higher value placed on consulting compared with
auditing of the financials of publicly traded companies. This will
reduce the obvious conflict of interest and level the playing field in
an area of vital public interest. -Sincerely, Robert Fuentes, MD
Author: "John Gilpin" at Internet
Date: 09/12/2000 2:52 PM
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Subject: File No. S7-13-00
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I recently read where you are considering some form of separation between
Auditing and Consulting services. I strongly support your efforts. As a
shareholder in companies that I feel have lied to me, I am more than tired of
seeing my hard-earned dollars invested in a company that is not fully disclosing
critical information or flat out lying to me. In addition, recourse seems so
limited. Class action suits hardly compensate for the loss of my capital as a
result of this kind of fraud. (In the past couple years I have felt the pain of
investing in both Ikon and MicroStrategy.) Keep up the good work. Your efforts
are commendable.
John Gilpin
Author: "Karl Hartkopf" at Internet
Date: 09/12/2000 6:21 PM
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Subject: File No. S7-13-00
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Dear Chairman Levitt,
I want to first congratulate you on your stupendous success in helping
to minimize selective disclosure in the financial equity markets. You
have helped to create and sustain the long term viability and democracy
of savings and investment by all investors.
Second, I want to put my full support behind your initiative to secure
"Auditor Indenpendence". You know why you are doing it so I won't restate
what you already know. This initiative along with the prevention of selective
disclosure measures will bring investors a step closer to being able to
invest in a "nearly perfect market".
Thank you for listening and understand that you are a hero to thousands of
people, even if they don't realize it or recognize it.
Karl Hartkopf
Author: Barb and Bruce Herdman at Internet
Date: 09/12/2000 9:12 AM
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Subject: file S7-13-00
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I am paying you to pursue the irregularities and potential problems
created by conflict of interest. I personally depend on the accuracy and
veracity of audited reports for much of my investing decisions. Please
continue to forcefully oversee all aspects of publicly traded
securities.
Thank you,
Bruce Herdman
SCPO USN(ret)
Author: Jesse Kiehl at Internet
Date: 09/12/2000 2:55 PM
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TO: RULE-COMMENTS at 03SEC
Subject: File No. S7-13-00
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To Whom it May Concern:
I was recently made aware of a proposed SEC rule that will forbid outside
accounting firms from consulting for the companies whose books they
audit. I support such a rule.
The realities of the modern corporate world make performing such dual roles
highly suspect. There are undue, unnecessary, and inappropriate incentives
to malfeasance necessarily present in such an arrangement. To be precise,
the risk of glossing over problems with the books to avoid disrupting the
consulting relationship is too high to bear. The incredible rate of growth
in consulting income for companies that do auditing far outstrips the rate
of growth from the auditing itself. Public confidence in the stability and
security of America's financial markets will not bear this situation
indefinitely.
High school history texts remind us of the SEC's origins. When the free
market is allowed to range so far afield that integrity and honesty are
compromised, that market will fail. Or, to clarify with metaphor,
free-range cattle taste better, but only if there's a cowboy around to keep
them from falling off a cliff.
It will be said that there is no proof of wrongdoing from these
arrangements to date. That may be true, but it is entirely irrelevant to
whether this rule is warranted. It strains belief to claim that there are
no unrevealed wrongdoings in America's financial world. The absence of
proof in hand, however, is also irrelevant. Simply: the public's
confidence must be maintained. Never forget that financial markets work
only by unanimous consent. If investors lose confidence in the integrity
of the system, or any major part thereof, we will divest ourselves rapidly,
and the whole system will crash (see high school history note above). I do
not suggest that this is such a situation in and of itself, but as an
investor who holds both mutual funds and individual stocks, I must know
that the financial statements over which I pore are reliable, accurate, and
untainted by the secondary profits of an accounting/consulting house.
Please adopt the proposed rule.
Very truly yours,
Jesse W. Kiehl
220 Seward Street
Juneau, AK 99801
P.S.: Please acknowledge receipt of these comments.
Author: at Internet
Date: 09/12/2000 1:39 PM
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TO: RULE-COMMENTS at 03SEC
Subject: File No. S7-13-00
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Dear Sir or Madam,
I am writing today to express support for the SEC's actions to separate
audit from non-audit services, I believe that it is a positive move in the
correct direction, and will ultimately lead to greater objectivity in the
accounting profession as well as more accurate financial information to
private investors. Best of luck in your endeavors...
Kavan Lee
10944 Strathmore, Suite 301
Los Angeles, CA 90024
Author: Eckhard Lucius at Internet
Date: 09/12/2000 1:55 PM
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Subject: File No. S7-13-00
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Dear Sirs,
I strongly support your move to separate Consulting from Auditing Services.
My opininon is based upon experience formed in two capacities:
a) as a Finance Professional working for publicly traded [US and European]
companies: I've been involved with company audits and auditors for many
years now. It is evident to anyone involved in this business that no-one is
free of conflicts of interest, auditors are no exception. While I have no
direct experience with Consulting Services being sold by auditors, I have
personally experienced how the mere desire of auditors to STAY auditors
come next year is sufficient to compromise their independence of judgement
and to turn a blind eye on debatable accounting decisions. How much more is
the prospect of getting lucrative consulting orders going to affect this
independence? Being an auditor requires you to keep a fair distance to your
client which is difficult enough considering that the client can and likely
will turn elsewhere if you take to harsh a stance. It's harder if you're
actively vying for extra business.
Another potential problem - that I've not been directly involved in but
witnessed from a distance - is that auditors are likely to be confronted
with the recommendations of their Consulting arm. One typical example
(typical because of the conflict of interest, but also because of the the
type of consulting work most likely to be given to auditors) is the
centralisation of Financial accounting across Europe in just one country.
Clearly the customer is interested in keeping the accounting as simple as
possible, and Consultants are paid to help them doing so. This can - and
did - result in 'cutting corners' and a fairly wide interpretation of what
are 'material' issues. An auditor might take a different - and stricter -
view of what is material and how closely local laws need to be observed,
but will then be confronted with the time- and cost-saving recommendations
made by his Consultant colleagues. Customers don't like paying twice for
conflicting advice...
b) as an investor and shareholder in a number of (US and non-US) companies
and being German and residing in Germany myself: US stock markets stand out
in the world with regard to the reliability and clarity of financial
information presented and easily available. It is easier and safer for me
to invest in US companies than in German companies - one of the reasons
being that US-GAAP is much preferable over German public accounting rules.
The other, equally important reason however is that I can generally trust
the numbers I see, because there is a strong institution (SEC) that
enforces the rules. Without that trust, I would and could not invest in US
companies, just like I don't invest in a number of countries with weaker
rules (or rules I'm not familiar with).
To me the credibility and trust which SEC and hence financial statements
enjoy in the US are the bedrock and foundation on which US financial mar
kets are built. Ensuring Auditors and Audits are as independent as possible
in their important role is another cornerstone of this trust. Everything
should be done to remove possible conflicts of interest, and the separation
of Auditing and Consulting clearly is a move in that direction.
Respectfully
Eckhard Lucius
Auenstr. 4
80469 Munich
Germany
Author: at Internet
Date: 09/12/2000 6:10 PM
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Subject: File No. S7-13-00
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I am in favor of Auditor Independence. I would like to see accounting and
consulting services kept separate to prevent conflicts of interest.
pmase@aol.com
Pamela B. Mase
Author: John Mikovsky at Internet
Date: 09/12/2000 11:23 AM
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Subject: File No. S7-13-00
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To Whom It May Concern:
I am writing on the subject of "Auditor Independence."
The subject here is conflict of interest, plain and simple.
How can a single firm generate fees for auditing services and consulting
services from the same company?
I feel that legislation should be passed where auditors and consultants
should at least be required to be from companies which do not have their
revenues related. Therefore, if Arthur Anderson, for example, wants to
have an account where they are responsible for audits at least make
Ernst & Young, for example, provide the consulting services. Hence,
make the consultants earn their fees and make the auditors perform a
comprehensive audit and serve as a check for the consultants. This will
ensure the integrity of the resulting financial figures which as
everyone knows serves as an important yardstick in countless business
decisions everyday inside and outside the company itself. Individual
investors as well as the company's own staff would benefit from having
the most accurate information on the state of the company's financial
standing. No one should be forced to make investment decisions or
decisions involving the company's future growth based on some firm's
"spin" for which they were able to paid double the fees. Thank you for
your attention.
Regards,
John M. Mikovsky
Author: "Mike Nickerson" at Internet
Date: 09/12/2000 3:54 PM
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TO: RULE-COMMENTS at 03SEC
CC: "Tina Turgeon" at Internet
CC: "Susan W Longley" at Internet
CC: "John Baldacci" at Internet
CC: "Tom Allen" at Internet
Subject: Reference File No.: S7-13-00
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To Whom It May Concern:
The above proposed Rule amounts to Overkill for the majority of CPA's providing
audit and other attestation services. This attempt to limit auditors to those
who do ONLY audit work for the client is actually reminiscent of "nationalists"
who, several years ago screamed, to "Buy American!". Those preaching that
ideology failed to realize the interdependence of a global economy, just as this
Rule's proposers fail to appreciate the client need for more encompassing
accounting services.
A better solution might be to address the issue itself, with more stringent
disclosure requirements pertaining to auditor - client relationships.
Mike Nickerson, C.P.A.
Author: "Chuck Pietka" at Internet
Date: 09/12/2000 7:38 PM
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TO: RULE-COMMENTS at 03SEC
CC: "Robert L. Bunting" at Internet
CC: "Ed Drosdick" at Internet
Subject: S7-13-00
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The proposed rule changes regarding investments and employment relationships
seem to be appropriate.
The proposed rule changes prohibiting non-audit services to attest clients seem
over reaching and will receive many comments. While many of those comments will
repeat those already on record, the following may add some additional thoughts
and provide a way to deal with the perceived issues in a more effective manner.
1. I have spend my entire career serving small to medium size businesses. I am
confident the result of the proposed changes would be a reduction in available
capital for emerging and smaller businesses. The effect of the change will be
to concentrate all the SEC attest services in a small number of firms and
dramatically limit competition.
The BIG 5 are already notifying smaller clients that they will have to pay
dramatically higher fees to the BIG 5 firm auditor or find another firm to do
the work. Non-regulatory economics and strategies are driving these changes. It
is not uncommon for a BIG 5 client to be advised that fees will increase 50% or
more.
The impact will be that the barriers to entry to obtain capital in the public
market will increase dramatically and only a few very powerful CPA firms will
remain in the marketplace to provide services to SEC registrants.
There will be a spin off effect that will increase attest fees for other
businesses seeking such services as the BIG 5 will no longer serve them and, to
the extent lower tier firms fill the void, it will be at an ever higher cost.
Thus, the concentration of attest services in the BIG 5 will have a detrimental
effect at all levels of the economy.
2. The possibility that other agencies ( such as the DOD, SBA, DOL, FDIC and
numerous state acquisition agencies that purchase services from smaller and
medium sized businesses) will adopt similar rules on the coat tails of the SEC
will cause further complications for small businesses. This is inevitable
because the failure of such agencies to adopt the tighter SEC standards would
imply that these agencies were accepting a lower quality service and the
credibility of all attest services provided outside the SEC domain would become
suspect. Therefore, the cost and availability of attest services would be
impacted at all levels of business.
3. In my 31 years of experience, I have never seen an audit decision
"favorable" to a client based upon the financial interest of the auditor. Our
present litigious and regulatory environment causes the auditor, in considering
his/her own financial interest, to make the more conservative decision. The
financial interest of the CPA firm is not limited to the collection of the
current fee, but to the overall health of the firm and, in the case of non-BIG 5
firms, the very existence of the firm. To the extent the SEC has observed
otherwise, I understand the situations to be isolated, not systematic.
However, to the extent that there may be a subtle bias, the SEC might consider
removing the short-term financial risk to the auditor by developing policies
similar to those outlined below:
a. Require all prior audit fees be paid in full prior to the start of any
(including interim) subsequent attest work for the registrant.
b. Require all SEC registrants to pay the greater part of attest fees in
advance.
c. Require that any non-attest fees be paid currently at the time the post
year end audit work begins and at the time the auditor's report is released.
Rules could also be promulgated to require non-audit fees be billed as incurred
so that the CPA firm does not have a significant financial risk in unbilled
non-attest services.
d. Consider promulgating a rule that audit fees must be commercially
reasonable and not a low margin "loss leader" for other services.
The goal of the SEC should be to help provide confidence in the financial
reporting of registrants, not to make unnecessary changes that will have
disruptive impacts on the entire financial community, and, in particular,
smaller businesses that also require services from the same firms.
The suggestions above would go a long way to bolster the public's confidence in
the services provided by those auditing SEC registrants and provide a real
reduction in bias for those who might be subtly influenced by the financial
consequences to the auditor.
I am not aware of any significant evidence of audit failures because the same
CPA firm provided non-attest services. While there may be a theoretical issue
in this area, it does not seem to be real. The rule changes to be made, to the
extent necessary, should be directed at solving demonstrated problems.
Charles E. Pietka
206.447.4254 voice
206.622.9975 fax
chuckp@mossadams.com
Author: at Internet
Date: 09/12/2000 11:35 AM
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TO: RULE-COMMENTS at 03SEC
Subject: File No. S7-13-00
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As an individual investor I would like to register my support of the SEC
regarding Auditor Independence. Audit and non-audit services must be kept
separate if they are going to merit public trust. One is a profession, and
the other is a business whose goal is to make money.
Thank you,
Suzanne Randolph, Investor
Author: "Keith Riffe" at Internet
Date: 09/12/2000 4:23 PM
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TO: RULE-COMMENTS at 03SEC
Subject: S7-13-00
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The purpose of this E-mail is to protest the proposed SEC rule prohibiting
non-audit services to CPA firm's attest clients. We serve smaller SEC
registrants that require extensive assistance in order to comply with SEC
reporting rules. The rule proposed by the SEC will effectively eliminate our
ability to provide this service. The losers are SEC, the client and the
investing public.
Small registrants rely on their CPA firms to perform not only the audit
function, but also give them advice necessary to be successful in business and
comply with the regulations. The advice touches many shores and the lines are
blurred.
It will be difficult, if not impossible, for these enterprises to segregate
their single CPA firm relationship into multiple segments in order to comply
with the new independence rules. The potential consequence of these new rules
is that CPAs will refuse to provide audit services or require excessive fee
increases. Most CPA firms (below the Big Five in size) will stop serving SEC
registrants. This will further restrict the access of smaller companies to
reasonably priced audit services.
There appears to be a lack of evidence to support the SEC's presumption that the
prohibited services compromise independence. It is likely that under this
proposal that even the largest audit firms will not be able to retain the
experts necessary in today's technological environment to render appropriate
services to clients (regardless of size).
This idealistic approach could reduce the quality of audits, limit access to
necessary services and do damage to the very investing public that the SEC is
charged with protecting.
Thanks for listening.
C. Keith Riffe
Author: Priscilla & Ted Ruegg at Internet
Date: 09/12/2000 5:51 PM
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>__Priscilla J. Ruegg and Edward L. Ruegg____________________________ Reply
Separator _________________________________
>Subject: 57-13-00
>Author: Priscilla & Ted Ruegg at Internet
>Date: 09/10/2000 11:20 AM
>
>
>Fool on, SEC, we are with you.
Author: at Internet
Date: 09/12/2000 2:28 PM
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TO: RULE-COMMENTS at 03SEC
Subject: File No S7-13-00
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As an individual investor I am concerned about the conflict of interest that
results from auditors providing non-audit services to their clients.
I strongle believe that there should be a ban enacted to prevent auditors
from providing non-audit services to their audit clients.
Jane A Smith
Author: "Kathryn Summers" at Internet
Date: 09/12/2000 11:01 PM
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Subject: File No. S7-13-00
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I feel strongly that auditing firms should be as independent as possible of the
businesses they are auditing. Auditing firms should not be providing consulting
services to the same businesses they audit. As a consumer and an investor, I
need to know that auditing firms have no financial ties to businesses other than
the audit itself. The conflict of interest is so strong that I beg the SEC to
take action. Auditing firms should not be allowed to provide consulting firms
to the same businesses they audit.
Kathryn Summers
5304 Carolwood Dr
Greensboro, NC 27407
Author: Mark Telpner at Internet
Date: 09/12/2000 7:50 PM
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Subject: Reference file no. S7-13-00
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It appears that the AICPA and others are pushing for a massive letter
writing campaign against your proposal governing audit independence. As the
managing partner of a 20 person local firm in Chicago I feel that another
voice should be heard.
While I do not like the idea of the SEC dictating audit rules in general I
must agree with your current proposal. However, my agreement comes from
another direction. For years the mid-size firms have suffered from the
"big %" under pricing audits so that they could get into a client and sell
them consulting services. For those of us that do not render a significant
amount of consulting services this has put us at a significant
disadvantage.
I believe that if your rule were put in place then the "Big 5" would have
to price their audits in a more realistic manner. We and other members of
the profession would benefit from this anticipated response.
You have our support.
Mark Telpner
Baygood Telpner & Rose Chartered
312 West Randolph Street
Chicago, IL 60606
Author: Tom Thalmann at Internet
Date: 09/12/2000 6:19 AM
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TO: RULE-COMMENTS at 03SEC
Subject: File No. S7-13-00
------------------------------- Message Contents
Twenty five years ago I was a young auditor working for a small CPA firm
in Chicago and saw greed and self promotion first hand. I support the
separation of consulting work from audit attestation. It is about time.
Tom Thalmann CMA CFM
Author: "altinklep" at Internet
Date: 09/12/2000 5:56 PM
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TO: RULE-COMMENTS at 03SEC
Subject: reference file S7-13-00
------------------------------- Message Contents
Andrew Tinklepaugh,CPA
3001 Stearns Hill Rd.
Waltham,MA 02451
Reference file S7-13-00
Dear SEC,
I am against the proposed rule prohibiting CPAs who perform audits
for SEC clients from providing other non attest services.
First of all, it would make it that much more expensive and
inefficient for businesses to require hiring another firm to do the tax work
or other non-attest accounting work. The other firm providing the service
would not have the information readily available that the audit firm already
has. Therefore the wheel has to get reinvented by the firm providing other
services.
Second, ever since the accounting profession started,CPAs providing
audit services have always done the corporations tax returns and other
services. Why should it be any different now just because a few bad apples
at the big five CPA firms have botched up their audits. Professional panels
and studies have concluded that providing other non-attest services have not
affected the quality of audits.
Please do not put this rule into force.
Thank You
Andrew Tinklepaugh,CPA
Author: Brian Trunk at Internet
Date: 09/12/2000 9:29 AM
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TO: RULE-COMMENTS at 03SEC
Subject: File No. S7-13-00
------------------------------- Message Contents
I am genuinely amazed that there is not already a regulation to prevent
an auditor of a publicly traded corporation from doing any other sort of
business with that corporation. The conflict of interests is too
obvious.
As in many situations that present a conflict of interests, actual
wrongdoing could be most difficult to detect and harder still to prove.
Audit of a publicly traded company is a public trust. A
quasi-governmental act. Where the public trust is involved, conflicts of
interest are generally illegal. They are illegal because they present
such an opportunity for undetectable wrongdoing and because they have,
ever present, the appearance of impropriety. There should be no such
opportunity for wrongdoing that might need to be detected. No such
appearance of impropriety should be allowed.
It does not seem there would necessarily be a loss of legitimate
revenues to auditors by such a regulation. If an auditor is prohibited
from doing other services for a company it audits and a company is
prohibited from hiring their auditor for other service, each auditor
will have opportunity to compete to provide those other services to
companies it does not audit. Not as cozy, I guess, but the appearance of
impropriety would be gone.
Brian D. Trunk
5702 42ND ST W
TACOMA WA 98466
Author: Matthew Tulett at Internet
Date: 09/12/2000 6:17 PM
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TO: RULE-COMMENTS at 03SEC
Subject: File No. S7-13-00
------------------------------- Message Contents
Hi,
I am an individual investor, and as such this issue is of huge
concern to me. The thought that a company might be buying services from their
auditors as a means of getting the benefit of the doubt in the audit looms
large. Whether this occurs or not I really do not care, what I do care about
is that the opportunity for it to happen is removed. Financial institutions
have to have a Chinese wall between departments that have a conflict of
interests, so why not in this case?
Thank you for your time
Matt
Matthew Tulett
_____________________________________________________________
Quidnunc
118 East 25th Street
8th Floor
New York
NY 10010
Direct Dial +1 212 981 1929
Fax +1 212 981 1910
Author: "RAMAH L VIERA" at Internet
Date: 09/12/2000 7:47 PM
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TO: RULE-COMMENTS at 03SEC
Subject: Re: File No. S7-13-00
------------------------------- Message Contents
> I would like to comment on the auditor/consultant issue. As one of 13,000
> investors in the now bankrupt Baptist Foundation of Arizona who relied on
the
> audit information provided by Arthur Andersen, I would like to see you
come down
> HARD on auditors who forget their ethical obligation in favor of padding
their
> own pockets.
>
> The BFA has a $640 million bankruptcy and only $240 million in assets.
This is
> a horrendous crime, orchestrated by a few of the top insiders at BFA and
> supported by Arthur Andersen who had been auditing their books since 1987.
THIS KIND OF CRIMINAL ACTIVITY MUST BE STOPPED.
>
> Thank you for the opportunity to "sound off."
>
> Ramah Viera
>
Author: George Washco at Internet
Date: 09/12/2000 5:19 PM
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TO: RULE-COMMENTS at 03SEC
Subject: auditors are consultants?
------------------------------- Message Contents
> ref File No. S7-13-00
>
> Seems self evident, auditors are not independent and
>
> therefore cannot perform fiduciary duties when their
>
> brethern are highly paid friends of management.
>
> As an investor, who ya gonna trust?
>
> SEC, you are right on the button with this one.
> "sic'em"
George Washco
Author: "Amy Angolano (Wiener; Goodman & Company; P.C.)" at Internet
Date: 09/12/2000 1:11 PM
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TO: RULE-COMMENTS at 03SEC
TO: at Internet
CC: at Internet
CC: at Internet
CC: at Internet
Subject: File Number S7-13-00
------------------------------- Message Contents
September 12, 2000
Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549-0609
RE: File Number: S7-13-00
Dear Mr. Katz:
I am writing to you as the CPA owner of an accounting firm that services SEC
publicly held clients. I have read your proposal Governing Auditor Independence
and have the following comments.
* The Securities and Exchange commission appears to be in search of a problem
with non-auditing functions that will require this proposal as the solution,
although no problem is evident or facts present to support this proposal. The
Securities and Exchange commission has admitted at they have no evidence that
independence has been compromised by non-audit services, nor has audit quality
been effected by non-audit services. There are no studies or reports that
support this proposal as necessary or appropriate.
* This proposal has the potential to have a far-reaching effect, which would be
dangerous to the accounting profession. If this proposal were to be adopted, it
would act as precedent leading to other regulators adopting the same standards
to stay in line with the Securities and Exchange Commission. This would cause a
wide reaching effect, causing accounting firms with or without SEC clients to be
subject to these proposed rules of independence.
* Under this proposed rule, an accounting firms audit clients would not be able
to rely on their accounting firm to advocate for them or provide expert services
in administrative proceedings before the IRS. Potentially this proposal would
limit tax-related services to the preparation of tax returns.
Page Two
September 12, 2000
Jonathan G. Katz, Secretary
Securities and Exchange Commission
* The Panel on Audit Effectiveness of the Public Oversight Board, which was
established at the request of the SEC has reviewed this proposal and has
concluded that in numerous instances non-audit services has directly contributed
to a more effective audit, and that there is no evidence to support that
non-audit services have compromised audit quality. The Panel stated that "both
the profession and the quality of audits are fundamentally sound".
* Under this proposal, a CPA firm would need to be either solely the auditors
for a publicly held company, or the non-auditors for a publicly held company.
The client would be forced into choosing two firms, one to handle their audits
and a second firm to handle their non-audit work, this has the potential of
leading to regular changes in auditors as the client may chose to dismiss the
auditors and rehire them in a non-audit capacity.
* This proposal would make "affiliates of the accounting firm" more broad based,
by viewing any entity in which the accounting firm has a commercially valuable
business relationship an affiliate.
* Accounting firms would effectively be precluded from almost any joint venture
or partnership, as the relationship could compromise the independence of the
accounting firm, although the investment made is immaterial and/or the
association limited.
* Restrictions regarding the association between accounting firms has the
potential to result in each firm being independent of the other's clients. This
restriction would also apply to international affiliations between accounting
firms and other firms such as legal advisors.
* In an attempt to rush this proposal through, the SEC has not allowed for
adequate time to respond to this proposal, nor has the SEC given full
consideration to the work being done by the ISB, whom the SEC set up to develop
a new framework for auditor independence.
* The SEC has tied the modification of the family disqualification rules, that
are long overdue and should be expedited to this scope of services issue which
requires more fact finding and analysis and should not be fast tracked but
rather approached cautiously and with all the facts in hand.
* This proposal will also have a negative effect on recruiting an hiring
necessary professionals for accounting firms, as the scope of the opportunities
within each firm would be limited. As recruitment and retention drop, there is
the real possibility of a decline in audit quality. Professionals would be more
drawn towards industries with broader career opportunities.
Page Three
September 12, 2000
Jonathan G. Katz, Secretary
Securities and Exchange Commission
* The SEC does not have the authority to make rules concerning the accounting
profession itself, and the "appearance of independence", not independence of
fact. The SEC lacks the authority to impose restrictions based on perceptions of
independence.
* The restriction of non-audit services would create firms that are reliant on
audit fees, thus undermining the auditor's independence.
* The accounting profession has been successfully giving reliable information to
investors through independent data for the past century, the proposed
restrictions would be a total restructuring of a profession that is working the
way it was designed to. This proposal would interfere with a businesses ability
to chose the services it wishes to offer and the ability of businesses to chose
the company they would like to do business with and services they wish to
utilize.
I am opposed to this Proposed Rule Governing Auditor Independence, and would
like to see it removed from consideration. I do support the modernization of the
Family Disqualification Rules, and feel that this area should be fast tracked
into policy.
Respectfully yours,
Joel Wiener
Certified Public Accountant
http://www.sec.gov/rules/proposed/s71300/0912b01.htm
